Can environmental supervision improve air quality? Quasi-experimental evidence from China

Abstract

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Environmental supervision is significantly disrupted by local economic development and typically characterized by a lack of independence in China. This paper investigates the impacts and mechanisms of the vertical management reform of environmental protection department in China on urban air quality. We construct a principal–agent model suitable for explaining the interactions between the central and local governments and elaborate the intrinsic mechanism of EVM on strengthening environmental supervision. Using manually collected data, we conduct EVM as a quasi-experiment and construct a time-varying difference-in-difference (DID) model. Our empirical results show that the EVM significantly strengthens regional environmental supervision and reduces urban air pollution, bringing abatement in the PM2.5 concentration. The mechanism shows that EVM increases enterprises’ green innovation and attracts new entrants, further promoting industrial upgrading. Our study provides a new perspective on environmental governance and urban air quality in emerging countries such as China.

Keywords

• environmental vertical reform
• air pollution
• local governance
• green innovation
• industrial upgrading effect