The impact of water rights reform on vegetation coverage: evidence from China

Vegetation is a key indicator of regional ecological environment changes, in which water resources will be most crucial. The water rights reform (WRR), a market-oriented system, is progressively replacing the current water resource policy. Therefore, this study utilizes the city-level data to empirically analyze the effect of the WRR on vegetation coverage, which is indexed by the Normalized Difference Vegetation Index (NDVI) with an empirical strategy of difference-in-differences (DID). This study found that the WRR does not increase the NDVI, but significantly decreases the NDVI. This estimate remains robust after accounting for another alternative model, one contemporaneous water-related policy, or alternative estimation methods. The possible reason why the WRR reduces the NDVI is that the WRR promotes economic growth in the non-agricultural sectors, which leads to the expansion of the urban area and reduces the cultivated land area. However, the WRR has also increased the grassland area and the wetland area. The heterogeneity analysis shows that the decreased NDVI caused by WRR will be more in areas with higher land potential or lower elevation. Therefore, the implementation of market-oriented water management needs to consider the balance between economic development and ecological protection.