Local governments’ environmental targets and green total factor productivity in Chinese cities

Abstract

Environmental targets can restrain the government's actions to a certain extent, so whether they affect regional green upgrading becomes an issue worthy of attention; however, few works have discussed the impact of environmental targets on green total factor productivity (GTFP). Using a sample of 232 Chinese cities from 2004 to 2014, we apply difference-in-differences based on propensity score matching to investigate the influence of governments' environmental targets on city GTFP. We find that environmental targets enhance city GTFP. While exploring mechanisms, we uncover that firm green innovation, government subsidies, and land allocation primarily drive a positive relationship. Furthermore, the positive effect of environmental targets is more significant in midwestern, non-resource-based, and dirty cities. Our paper emphasizes the importance of governmental intervention in regional green upgrading, providing a basis for local governments in developing countries to improve policymaking in this area.