Professor Zhong Maochu: Economic Benefits of the Pilot Watershed Ecological Compensation Project

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(Correspondent: Wang Tianjian) The collaborative paper Economic Benefits of the Pilot Watershed Ecological Compensation Project has been published in The Journal of World Economy, 5th issue of 2024. This paper is co-authored by Professor Zhong Maochu of our school, Dr. Xia Yong (NKU School of Economics Doctorate, class of 2017) from the School of International Economics and Business of Nanjing University of Finance and Economics, and Dr. Kou Dongxue (NKU School of Economics Doctorate, class of 2021) from the Policy and Economics Research Institute of the Chinese Academy of Information and Communications Technology.

The watershed ecological compensation project is one of the most important projects for building Chinese ecological civilization. The central and local governmental departments have actively explored and implemented a series of supportive policies for the establishment of a sound inter-regional ecological compensation mechanism. Through top-down policy pilots and bottom-up practical innovations, distinctive ecological compensation modes have been formed in various regions, such as the Xin'anjiang River inter-provincial basin ecological compensation pilot project, which combines central government subsidies with bidirectional compensation, and the Sanjiangyuan basin ecological compensation pilot project, which combines central transfers with special funds and local budgetary arrangements.

Based on the fact that China's Pilot Watershed Ecological Compensation (PWEC) project has been gradually implemented in stages and batches, this paper manually matches data from 148 water quality monitoring points from border sections with county-level economic data between 2007 and 2018. It then discusses the impact and mechanism of the PWEC project on economic benefits obtained in compensated areas through the use of a multi-phase difference-in-differences (DID) method. The results of the research reveal that the PWEC project helps residents of compensated areas increase their incomes and promote local common prosperity by increasing the number of jobs and improving the diversification of the employment structure. However, the effects of the PWEC project exhibit different characteristics due to policy selection bias. They manifest through a unidirectional eco-compensation (UEC) that benefits the rural residents but not the urban residents, a bidirectional eco-compensation (BEC) that benefits the urban residents more than the rural residents, and a vertical eco-compensation (VEC) that benefits the urban residents but not the rural residents. In the policy change process, the transformative effect of VEC into UEC has been deteriorating from its initial effect of benefiting the urban residents but not the rural residents to an effect of benefiting neither the rural residents nor the urban residents. However, the policy change mode of transformation from VEC into BEC and from UEC into BEC has been shifting from their existing effects to benefiting the urban residents more than the rural residents. The innovation of this paper is to analyze the intrinsic logic of obtaining economic benefits from cross-basin pollution control in detail, and to provide the basic logical theoretical explanation and corresponding micro-empirical evidence for the policy of ecological compensation and poverty alleviation.

Founded in 1978, The Journal of World Economy is jointly sponsored by China Society of World Economics and the Institute of World Economics and Politics, Chinese Academy of Social Sciences. It is one of the earliest world economic publications in China, and is also recognized as a top-level economics journal by Chinese universities and institutes.