Hidden environmental costs of economic ambitions: An empirical study of pollution emissions in the wake of growth targets

Abstract

The extant body of academic literature has thoroughly examined the influence of political promotion institutions on various aspects of economic growth and corporate behavior. However, there remains a gap in the understanding the extent and mechanisms through which the establishment of economic growth targets influences firms' pollution emissions. Addressing this gap, we construct datasets that encapsulate both micro-level and macro-level perspectives to examine the impact of economic growth targets on corporate pollution. We find that an increase in economic growth targets leads to a significant rise in pollution emissions from industrial firms. To address potential endogeneity issues, we employ various strategies, and our results remain robust across these different approaches. We then estimate the heterogeneous impact of economic growth targets and demonstrate that the positive effect of these targets on pollution emissions tends to be less pronounced for firms situated in cities governed by female mayors. Conversely, the effect appears more pronounced for firms located in the western region, those operating in cities led by older mayors, and those in cities where mayors have lower levels of education. Finally, we explore potential mechanisms through which economic growth targets impact corporate pollution. Our results show that at the firm level, a higher economic growth target primarily leads to increased pollution emissions from enterprises by reducing firms' investment in pollution control. At the city level, an elevation in economic growth targets predominantly results in escalated enterprise-related pollution, chiefly due to its hindrance of urban green innovation, reduction in fiscal allocations for science and technology, and a decrease in educational fiscal outlays. These empirical findings strongly advocate for the implementation of measures aimed at dissuading prefecture-level city governments from formulating excessively ambitious economic growth targets, as a viable strategy for mitigating pollution stemming from manufacturing firms in developing nations. In view of this, our research is conducive to advancing the process of building a sustainable development path in China and providing reliable solutions to global ecological challenges.