Impacts of Environmental Regulation on Water Pollution Enterprises in China:

An Empirical Study Based on “Two Control Zones” Policy

TIAN Xin1, CHEN Shuai2, XU Jintao3,†

1. College of Environmental Sciences and Engineering, Peking University, Beijing 100871; 2. China Academy for Rural Development, Zhejiang University, Hangzhou 310058; 3. National School of Development, Peking University,

Beijing 100871; † Corresponding author, E-mail: xujt@pku.edu.cn Abstract Based on the data of the Annual Census of Enterprises and social-economic data of counties, this article constructs a panel-did model to investigate the impact of “Two Control Zones” policy on enterprises that discharge water pollution in China. It is found that the “Two Control Zones” policy has a significant impact on water pollution enterprises, resulting in a significant decline in the growth rates of output, newly-built enterprises and the number of existing enterprises in all counties. Moreover, the impact of the “Two Control Zones” policy on enterprises that discharge water pollution is continuous. In the face of the impact of the “Two Control Zones” policy, enterprises that discharge water pollution located in economically developed areas are more affected. When analyzing the initial factors affecting the effect of the policy, it is found that the effect of the “Two Control Zones” policy is more prominent in areas with high education level, high population density, high average wage and large proportion of the secondary industry. Based on the above conclusions, this article holds that the policy of “Two Control Zones” has restrained the aggravation of pollution, and its economic cost is reflected in increasing the burden of water pollution enterprises and slowing down the growth rate of output. However, the magnitude of the increase in social welfare brought about by the reduction of pollution and the slowdown in the growth of enterprise output need to be further assessed. Key words environmental regulation; “Two Control Zones” policy; water pollution enterprises; panel-did model