Integrating ecological indicators into economic and financial decision-making management

Abstract

The disconnection between ecological sustainability and financial decision-making remains a persistent challenge in managing environmental restoration efforts. This study aims to evaluate how financial assistance for ecological restoration contributes to improvements in grassland vegetation coverage—an essential ecological indicator—by integrating ecological metrics into economic and financial management frameworks. Using panel data spanning from 2005 to 2020 across 54 counties in China that engage in animal husbandry and semi-agricultural practices (excluding Inner Mongolia), the study employs bidirectional fixed-effects and cross-fixed-effects models while controlling for relevant natural factors. Empirical results reveal: (1) a significant but nonlinear relationship between fiscal assistance and vegetation coverage; (2) regional variation in the ecological impact of financial assistance due to differing environmental baselines; (3) stronger ecological outcomes where fiscal decentralization is more balanced; (4) local government effectiveness significantly mediates the impact of financial support; and (5) mismatches in fiscal spending structures can reduce ecological returns. These findings suggest that embedding ecological indicators into fiscal planning and enhancing local governance capacities are vital for improving the cost-effectiveness and environmental impact of restoration programs.

Keywords

• Ecological indicators
• Fiscal assistance
• Vegetation coverage
• Fiscal decentralization
• Environmental management