Spatial Relocation of Polluting Industries in China: Evidence from Interprovincial Assistance Programs and Micro-level Firm Emissions

This study examines pollution-intensive industry relocation and its environmental costs under China's inter-provincial assistance program. We find that while the program significantly boosts economic output in recipient regions, it concurrently increases local pollution emissions, confirming the Environmental Kuznets Curve hypothesis for early-stage development. Longitudinal analysis of listed firms' cross-regional investments shows these environmental costs attenuate over time. Mechanism analysis reveals new polluting firms' entry as the primary driver of negative externalities. Heterogeneity tests demonstrate that eastern-assisted regions achieve lower emission intensity per unit output than central-assisted regions, attributable to scale economies. Our findings suggest institutional designs should account for local governments' strategic behavior to mitigate environmental externalities from industrial relocation.