The Ongoing Re-Centralization Trends in Environmental Policy in China: The Case of Green Finance Policy

Abstract

Collusions between local governments and firms” and its impacts on environmental governance have been paid a great of attention by the scholars in China. The center government carried out a series of re-centralization measurements to deter the collusions. By using the National Private Enterprise Survey datasets, we employ the Tobit model and Propensity Score Matching approach to investigate the relationship between political connections and corporate environmental investments, from the perspective of the re-centralization trend. We find that political connections have significantly improved corporate environmental investments. Furthermore, through establishing the mediation effect model, we find that private entrepreneurs mainly use political connections to obtain bank loans with lower interest rates, while formal financial institutions such as banks have higher requirements according to the green finance policies. Therefore, the positive effects of political connections on environmental investment are mainly mediated through formal finance. Our research thus has important policy implications on the ongoing re-centralization trends in environmental governance in China.

Keywords: Political Connection, Environmental Investment, Formal Finance

JEL Classification: P2, P3, Q52, Q53