Examining the impacts of implicit economic policy on urban environmental pollution: Unveiling pathways for sustainable recovery

Abstract

Local governments face challenges in achieving environmental control amidst economic policy uncertainty, particularly in the context of the mining, non-fuel minerals, energy minerals, fossil fuels, or metals industries. This study examines the impact of economic policy uncertainty (EPU) on environmental pollution using data from Chinese prefecture-level cities, focusing on these industries. The findings reveal a positive correlation between EPU and pollution, with each unit increase in EPU associated with a 0.1% decrease in wastewater emissions and a 0.2% decrease in exhaust emissions. To examine the mechanism, the study analyzes local government behavior, enterprise behavior, and local economy performance in these industries. Results indicate that EPU reduces investment but encourages innovation, particularly in green technologies, in these industries. Furthermore, EPU promotes innovation, the growth of the tertiary sector, and the entry of high-tech firms while reducing investment. The mechanism analysis confirms that EPU mitigates regional environmental pollution through technological and compositional effects while curbing the scale effect, particularly in the mining, non-fuel minerals, energy minerals, fossil fuels, or metals industries. These findings provide insights for local governments and stakeholders in these industries to address environmental pollution governance amidst economic policy uncertainty.