Input subsidies and the depletion of natural capital: Chinese distant water fishing

Abstract

Input subsidies in natural resource sectors are widely believed to deplete the natural capital on which these sectors depend. However, estimating the causal effect of subsidies on resource extraction has been stymied by identification and data challenges. China’s fishing fleet is the world’s largest, and in 2016 the government changed its fuel subsidy policy for distant water vessels to one that increases with predetermined vessel characteristics. Regression discontinuity estimates imply a long-run equilibrium elasticity of fishing hours with respect to fuel subsidies of 2.2, though these estimates exhibit only modest precision according to randomization inference. Back-of-the-envelope calculations suggest that reducing Chinese distant water fuel subsidies by 50% could increase fish stocks across ocean regions by a median of 5.5%.