Repression or promotion? Transfer payments, ecological constraints, and enterprise development

Abstract

The establishment of national key ecological function areas constitutes a pivotal policy tool for China's environmental preservation and restoration initiatives. Nevertheless, the economic ramifications of policy implementation on the growth of regional enterprises remain substantial. This research employs the quasi-natural experiment framework provided by the national key ecological function area, focusing on 102 counties in Hebei Province from 2014 to 2018. By employing the difference-in-difference method, this study scrutinizes the policy's impact on enterprises surpassing designated size thresholds, ensuring the robustness of results through multiple tests. The findings reveal a pronounced negative effect on regional enterprise development subsequent to policy implementation, as evidenced by a 12.57 percent decline in the developmental metrics of enterprises exceeding the specified size threshold. Furthermore, this adverse impact exacerbates with prolonged policy duration, thereby accentuating the imposition of “ecological constraints” that restrict enterprise expansion in the pursuit of comprehensive ecological protection. Heterogeneity analysis underscores disparate policy impacts, particularly affecting counties characterized by low levels of industrialization and substantial local fiscal expenditure. This study posits that the prevalent utilization of environmental surveillance and punitive measures may contribute to these adverse effects, fostering a passive rather than innovative enterprise comportment.