The environmental effects of undertaking industrial transfer in developing countries: a quasi-natural experimental evidence in China.

ABSTRACT

The construction of National Industrial Relocation Demonstration Zones (NIRDZ) is important for China's industrial transfer, but its environmental influence cannot be neglected. This study explores the environmental effects of industrial transfers by studying China's NIRDZ. By employing panel data of 284 cities in China between 2005 and 2019, we compare environmental quality changes over time in areas with and without demonstration zones based on the staggered difference-in-differences (DD) technique. The results demonstrate a 0.032 increase in the environmental quality level of industrial receivers after the implementation of demonstration zones. The effect of demonstration zones on environmental improvement is moderated by natural resources, capital accumulation, and technological innovation capabilities. This impact is more fully realized in cities with resource-based, low-capital accumulation, and high-tech innovation but is not statistically significant difference at various levels of human resources. The environmental improvement effect of the NIRDZ is powerful in central cities and small- and medium-sized cities instead of western regions and large-scale cities. Additionally, mediation analysis is adopted to assess the potential mechanism between the association of NIRDZ and the environment. The demonstration area negatively affects environmental quality through the economic scale effect while improving environmental quality through the technological innovation effect. We provide empirical evidence that the NIRDZ is positively correlated with the environment and identify the technology effect as one underlying driver of this correlation to help developing countries address its detrimental impacts.