Environmental Regulation and Economic Development: Evidence from the River Chief System in China

Abstract

Existing studies have not reached a consensus on whether environmental regulations can drive economic development while strengthening pollution control. Based on the panel data of 226 cities in China from 2004 to 2016, this paper uses the difference-in-differences (DID) estimation to investigate the impact of the River Chief System (RCS) on regional economic development for the first time. The findings are as follows: (1) the RCS significantly increases the regional gross domestic product (GDP) and per capita GDP, and a series of robustness tests also prove this conclusion; (2) the heterogeneity tests indicate that the positive effect of RCS on economic development is more significant in cities with a lower administrative level, eastern cities, small cities and cities with lower water resource endowments; and (3) the mechanism tests show that the RCS promotes urban economic development mainly through the two channels of industrial structure upgrading and technological innovation. These findings are of practical significance for China and other countries to balance economic development and environmental protection when formulating and implementing environmental regulatory policies.