Does the economic growth target overweight induce more polluting activities? Evidence from China.

Abstract

In China, official promotion evaluation based on economic performance motivates local governments to develop high economic growth targets, which has played an active role in boosting China's economic growth in the past decades, whereas its environmental consequences have not been fully exploited. This paper finds that the economic growth target overweight has a stronger positive impact on the output of high-polluting industries than on the output of low-polluting industries, thus inducing more polluting activities. To deal with the issues of reverse causality and omitted variables bias, we take an instrumental variable approach. Examining mechanisms, we show that economic growth target overweight promotes polluting activities through the deregulation of the polluting activities in high-polluting industries. We also find an increase in the impact of the economic growth target overweight after the 2008 global economic crisis. Our study provides new evidence for explaining the dual presence of rapid economic growth and heavy environmental pollution in China.