How China’s Ecological Compensation Policy Improves Farmers’ Income?—A Test of Environmental Effects

Abstract

Based on the quasi-natural experiment established in China’s national key ecological function areas, this paper takes 102 counties in Hebei Province, China, from 2014 to 2018 as the research object. It uses propensity score matching and difference-in-difference methods to investigate the impact of policy implementation on farmers’ income levels and constructs a mechanism using the air quality index to examine the environmental effect. The results show that when the time and regional fixed effects are not considered, the income level of farmers in the county increased by 3.11% due to the influence of the transfer payment policy, and the policy treatment effect grew over time. Among the control variables, the degree of industrialization and agriculturalization, urbanization rate and government financial scale were all positively related to farmers’ income. Controlling the fixed effects of region and year, the impact of policy on the improvement of farmers’ income was weakened, and the regression coefficient changed from 0.2211 to 0.0366, a drop of 83.45%. This suggests that the policy is greatly affected by the city where farmers live. The “environmental effect” test results showed that transfer payments could increase the income level of farmers in counties affected by the policy. The mechanism is that the priority measure of the ecological compensation policy is to improve the ecological environment, which is conducive to improving local environmental governance and environmental productivity and increasing crop yields, and thus increasing farmers’ incomes. Because the regions where the policy is implemented overlap with highly poverty-stricken areas, it is necessary for the central government to improve transfer payment standards and enrich their content to protect people’s livelihood while promoting ecological protection. As a result, local governments will be encouraged to act ecologically, vigorously develop local ecological industries, and promote the internalization of positive externalities in ecological environmental services, further improving the level of agricultural modernization and ecological sustainability and improving the income levels of farmers and their quality of life.