Strategic Interactions in Environmental Regulation: Evidence From Spatial Effects Across Chinese Cities

Hua Zhang,Yun Zhang,Xiaoxiao Zhou,Tiantian Xu

doi:10.3389/fenvs.2022.823838

Abstract

Developing countries are notorious for their enforcement gap in environmental regulation. Despite policymakers and scholars focusing on this phenomenon in China, there is little literature to explore the cause for its prevalence. This paper aims to explain this occurrence from the perspective of strategic interactions among the local governments in China based on the yardstick competition theory. Employing spatial panel data models, we use a panel dataset of Chinese cities to investigate strategic interactions in environmental regulation and identify their possible sources. The results depict a confirmative picture of strategic interactions in environmental regulation among Chinese cities, suggesting that the cities tend to imitate their neighbours and implement looser environmental regulation in response to the decreasing stringency in neighbouring cities. This transmission effect demonstrates the prevalence of incomplete implementation of environmental regulation. Moreover, the imitative actions vary across Chinese cities, as they are observed in eastern and western cities but not in central cities. In addition, the imitative actions are significantly weaker when environmental governance gains a higher degree of salience, indicating that green performance appraisals reduce strategic interactions among local governments. Finally, strategic interactions are found to originate from the fiscal decentralization system, and are strengthened by the turnover of the municipal party secretary or a younger one.

Highlights

Based on the panel dataset for 260 Chinese cities for the period 2003–2016, we provide evidence for the existence of significant strategic interactions regarding environmental regulation in different Chinese cities
With the three types of spatial weight matrices, the coefficients of W × ER are significantly positive at the 1% level, indicating the existence and mutual imitation of strategic interactions in environmental regulation among cities in China
The optimal strategy for local government officials is to reduce the intensity of environmental regulation when the competitors relax their own environmental regulation, which leads to a low-level equilibrium and loss of social welfare (Fredriksson et al, 2006; Sjöberg, 2016)

Summary

Introduction

There has been increasing concern about severe environmental pollution in China. The Chinese government has focused on pollution reduction through several policies (Zheng and Kahn, 2017; Greenstone et al, 2021). Environmental regulation is a viable and powerful tool to readily address environmental problems during economic development (Xie et al, 2017; Song et al, 2022a). By 2013, China enacted 30 state laws and 1,400 industrial environmental standards, whereas local governments implemented 314 local regulations related to environmental governance (Zheng and Shi, 2017). A stringent environmental protection law was implemented in 2015, and subsequently, a basic environmental regulation system was established. The existing environmental regulations in China are inadequate, as environmental problems occur frequently. China was ranked No 120 in air quality based on the environmental indices of 180 countries

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