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From Quantity to Quality: Do the Political Incentives matter for Green Transformation in China?

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Abstract

Political promotion is a significant factor in shaping the behavior of local officials in China. Given that the focus on economic growth has shifted from "quantity" to "quality," it is imperative to assess whether reforms in incentive structures effectively facilitate the transition towards green development at the local level. A quasi-natural experiment was conducted based on the 2013 Performance Appraisal System (PAS) reform to examine the impact of local officials’ promotional incentives on green innovation. The findings indicate that restructuring incentives significantly inhibit high environmental-risk (ER) firms' green innovation. Under economic pressure, local officials tend to promote the green transition of local high-ER firms. The mechanism analysis indicates that local officials, in the context of environmental protection tournaments, tend to prioritize measures aimed at reducing the quantity of pollutants emitted by high-emission-rate firms over those focused on improving production process quality, thereby impeding green innovation. Furthermore, the heterogeneity analysis confirms that local officials adopt strategic behaviors to achieve economic and environmental protection objectives while conducting political games among stakeholders.

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Data Availability

The data is available upon request.

Notes

  1. Although innovation is emphasized in the new PAS, there is no differentiation in policy requirements for the innovation effect between high-ER and low-ER firms within the 2013 PAS. Furthermore, innovation aligns with the target of GDP growth. However, green development requires a trade-off between economic growth and environmental protection, and its impact varies among firms based on their pollution levels. By dividing them into two groups—high ER and low ER—we can analyze how the new PAS's environmental focus affects the green behavior of firms. Similar to the innovation indicators in the 2013 PAS, policy shocks from other non-green development-related indicators exhibit no differential impact on high-ER and low-ER firms. The DID approach effectively controls for such consistent policy effects.

  2. Some other meaningful indicators are usually applied in existing research to represent innovation, such as R&D expenditure and human resources. The specific data of R&D expenditure and human resources for green innovation is not separately counted from general innovation. Therefore, due to data availability, we only use the total amount of patents to represent green innovation.

  3. For the purpose of the study, only the parent company and its located city data were considered.

  4. To guarantee the sample includes the data before the policy shock, we select the firms that IPO before 2014.

  5. Although the service and manufacturing industries face different pressures for environmental protection, the principle of selection of the control group in this paper is to select those firms that are less affected by the environmental governance of the local government. Because of the small number of these enterprises, their removal or not did not have a significant impact on the results. Therefore, as with most of the existing literature, we did not remove them.

  6. We selected data from 2007 onwards to eliminate the impact of the “one-vote veto” PAS reform.

  7. All of the indicators are normalized to the same direction. As the performance worsens, the values increase, indicating a higher promotion pressure on local cadres.

  8. year_2013 is only for treated group, meaning that if the firm belongs to high ER and also locates in the pilot cities, year_2013 = 1.

  9. year_2016 is only for treated group, meaning that if the firm belongs to high ER and also locates in the 16 pilot provinces and cities, year_2016 = 1.

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Funding

The work is supported by the National Natural Science Foundation of China (No. 41801218) and by China National Social Science Fund (No.22BZZ105).

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Authors and Affiliations

  1. Cooperative School of International Education, Tianjin University of Commerce, Guangrong Road 409, Tianjin, 300314, PR, China

    Lu Miao

  2. China Center for Special Economic Zone Research, Shenzhen University, Nanhai Ave 3688, Shenzhen, 518060, GuangdongPR, China

    Lu Miao

  3. International Cultural Exchange School, Fudan University, Handan Road 220, Shanghai, 200433, PR, China

    Huijie Gu

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  1. Lu Miao
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Correspondence to Lu Miao or Huijie Gu.

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Balance test of PSM

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Miao, L., Gu, H. From Quantity to Quality: Do the Political Incentives matter for Green Transformation in China?. J OF CHIN POLIT SCI (2023). https://doi.org/10.1007/s11366-023-09869-9

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