Balancing environmental protection and economic development: the role of watershed horizontal ecological compensation policy evidence from the Yellow River Basin

Abstract

Amid ecological civilization construction, coordinating environmental protection and economic development across administrative jurisdictions is increasingly urgent. As an important institutional arrangement for balancing inter-regional ecological interests, the effectiveness of the horizontal river basin ecological compensation policy is crucial for future watershed protection policy design. Based on a theoretical model, this study uses the multi-period difference-in-differences method to examine the policy's environmental and economic impacts on 529 county-level units in the Yellow River Basin. Results show that first, the policy significantly reduces pollutant emission intensity and promotes green economic growth in compensated regions. Second, it achieves environmental–economic synergy through industrial upgrading, technological innovation and energy conservation. Third, the synergy effect is stronger in areas with severe water pollution, gentle terrain and non-poverty status. Finally, fiscal transfer payments and human capital accumulation positively moderate this synergy. This study provides new implications for watershed governance and ecological compensation policy.