Can environmental centralization help reduce pollution? Evidence from an administrative reform in China

Abstract

Amid the longstanding dispute over the centralization and decentralization of environmental regimes, most discussions have focused on developed countries. Few studies have tested the mechanisms underlying centralization and decentralization. The establishment of the Ministry of Environmental Protection in China in 2008 has led to various changes in the degree of environmental centralization. Based on this reform, we use standard and continuous difference-in-difference designs to estimate the effect of environmental centralization on pollution in developing countries and to test the underlying mechanisms. We find that the establishment of the Ministry of Environmental Protection has effectively led to reduced pollution in provinces with higher degrees of environmental decentralization. Furthermore, centralization has restricted local governments' free riding and reduced emissions at the borders. It has also strengthened local governments’ incentives for environmental governance. The implication is that environmental centralization is conducive to reducing the free-riding behavior and race-to-the-bottom problems of developing economies, thus contributing to environmental well-being.