The environmental externality of economic growth target pressure: evidence from China

Abstract

PurposeThis study aims to investigate the external effect of the economic growth target pressure of local governments on establishment-level SO2 emissions.Design/methodology/approachBased on manually collected panel data of 74,058 China's industrial establishments and more than 330 thousand observations from CIED and ESR, the authors use a firm-fixed effect model, instrumental variables estimation and heterogeneity tests to identify the environmental externality of economic growth target pressure.FindingsThe establishments in cities that meet or slightly exceed the economic growth target experience greater negative externality measured by SO2 emission intensity. This external effect is more pronounced in regions: with a strict and overweighted target setting; with stronger officials' promotion incentives; with a low degree of marketization; and in firms with great economic importance. The authors identify the underlying mechanisms of dependence on dirty industry and the relaxation of environmental enforcement. And the environmental protection constraints in 2007 mitigate the negative externality.Practical implicationsThe paper sheds light on to what extent economic growth target pressure has a negative externality of pollution in China and how this pressure may conflict with environmental protection.Originality/valueThis paper complements prior research on the economic effects of economic growth targets, expands the knowledge on the determinants of establishment-level pollution emission from the perspective of target pressure and provides insight into the environmental externality that results from political factors.