Water conservancy and farmers' income: A quasi-natural experiment based on the Three Gorges project

Globally, large-scale water conservancy projects are widely used as a policy instrument to enhance climate resilience, stabilize agricultural production, and promote inclusive growth, yet credible evidence on their income and distributional effects in developing economies remains limited. This paper studies whether large-scale water infrastructure can contribute to these outcomes by examining the Three Gorges Project in China. We use a balanced county-level panel of 351 counties in the middle and lower Yangtze River basin from 2003 to 2020 and estimate a difference in differences design that exploits variation in exposure to the project’s flood control benefits over time. We find that the flood control function of the Three Gorges Project increases rural residents’ per capita disposable income, and the result is robust to a range of alternative specifications and placebo tests. Mechanism evidence suggests three channels: higher agricultural productivity, stronger household entrepreneurship and nonfarm business activity, and greater local investment. The income effect is larger in Central China and in counties with higher flood risk. We also find that the project reduces the urban rural income gap, consistent with water infrastructure supporting shared prosperity.