Abstract：Using household level panel data in the Lashihai watershed in Yunnan Province from 2005 to 2016, this paper exploits the Difference-in-Differences (DID) model, Propensity Score Matching (PSM)-DID approach and placebo test to empirically investigate the income-enhancing effect of wetland restoration for local residents. The results suggest that wetland restoration has had a significant positive impact on households' income growth, raising total and per capita income by 39.2% and 43.5% respectively. Such findings are valid through multiple robustness tests. Wetland restoration has effectively improved the income structure such that the income growth stems mainly from government transfer like subsidies for wetland restoration and off-farm employment such as ecotourism. The income-enhancing effects of wetland restoration are heterogenous. On the one hand, the effect is significantly stronger for non-poverty households than for poverty households, and thus there may be a risk of enlarging income inequality within rural communities; on the other hand, social capital within rural communities such as information sharing and general trust improved the income-enhancing effect of wetland restoration.
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