Navigating and Evaluating the Labyrinth of Environmental Regulation in China

We examine the development of China’s environmental regulatory system over nearly 50 years and review economic studies of its effectiveness. China’s environmental regulation system has evolved over time into a complex and multilayered labyrinth. However, studies in the economics literature tend to focus on a few policies that span periods for which data are available and that allow causal identification. While the literature suggests that the policies have been generally effective in improving environmental quality, it also reveals several challenges for conducting empirical analyses: a firm’s regulatory status is frequently endogenous, data quality is variable, although improving over time, and overlapping policies may undermine traditional identification approaches. Further research is needed to comprehensively evaluate the cost-effectiveness of China’s environmental regulations, identify the interactions of multiple policies, and extend the analyses beyond water and air to also include soil and other types of pollution.