LAUSR

This paper studies the effects of Key Control Areas (KCA) policy implemented by the Chinese government in 2012 on city development transformation, in which strict environmental regulations were imposed in KCA cities in both tropical and subtropical zone. Based on the panel data of 155 tropical and subtropical cities in China from 2000 to 2017, we use a simple Differences-in-Differences approach to estimate the effects. Results show that more draconian environmental regulation has significant positive effects on city transformation. Furthermore, the designation of key areas leads to a screening effect on firms, that is, some of them increase technology investment in green production, while other firms are not capable to shoulder the rising cost and choose to reduce production or even shut their business, which ultimately promotes the city transformation. Meanwhile, with the expansion of the service industry, the relative proportion of manufacturing has declined, which brings about the upgrading of the industrial structure, and in turn promotes the city transformation.