Does Basin Ecological Compensation Promote Green Economic Development in the Compensated Area?—A Quasi-Natural Experiment Focusing on the Tingjiang-Hanjiang River Basin, China

Ecological compensation policies have become increasingly important for sustainable watershed management worldwide. Current research primarily examines environmental outcomes, resulting in a limited understanding of their economic impacts, especially concerning green development. This study evaluates the ecological compensation pilot in the Tingjiang-Hanjiang River Basin, using difference-in-differences (DID) and mediation analysis on panel data from 136 counties spanning the 2009–2022 period. The findings indicate that the ecological compensation policy reduced green economic growth by 3.94% in the compensated regions. However, it also promotes ecological protection, as demonstrated in the Wujiang and Yuanjiang River Basins, where compensation standards and methods are designed to encourage conservation. The main challenge to green economic development in the Tingjiang-Hanjiang River Basin during the first two phases of ecological compensation policies is the lack of environmentally focused technological innovation, resulting in limited growth. Heterogeneity analysis reveals that these policies are less effective in restraining activities in economically weaker upstream regions than in more developed downstream areas. Consequently, key requirements for advancing green economic development in the third round of compensation policies are proposed.