The Implicit Costs of Biodiversity Conservation: Evidence From Corporate Investment Distortion in China

ABSTRACT We examine the implicit costs of biodiversity conservation by exploiting China's Green Shield Action (GSA). Using a difference‐in‐differences approach, we find that firms in affected cities reduce investment rates by two percentage points, a 33.11% decline relative to the mean. This effect is driven by heightened local fiscal pressure—leading to tighter tax enforcement and subsidy cuts—and increased operational uncertainty. The impact is more pronounced for firms with irreversible capital, high competition, or elevated risk. Furthermore, subsidiary‐siting analysis shows this decline is not offset by compensatory investment in other regions, indicating a substantive contraction in aggregate investment capacity rather than mere reallocation. A back‐of‐the‐envelope calculation estimates a cumulative aggregate investment loss of 4.378 billion RMB. Our findings highlight a significant trade‐off between ecological goals and indirect economic costs, offering critical insights for global biodiversity frameworks and sustainable development.