Boundary effects of water pollution under differentiated environmental decentralization modes: Evidence from China

Differentiated environmental decentralization modes across government levels may lead to divergent manifestation of boundary effects. Utilizing firm-level data and boundary situation of each county, this study examines the manifestation of water pollution boundary effects at provincial and city boundaries from the perspective of firms' environmental performance. Our analysis uncovers that under the combined influence of the “unified-delegated” decentralization from central to provincial governments and the “hierarchical” decentralization from provincial to city governments, the chemical oxygen demand (COD) removal rate of firms in provincial boundary counties is 5.419 percentage points lower compared to firms in non-boundary counties, which is triggered by insufficient investment in end-of-pipe treatment. Conversely, firms in city boundary counties demonstrate a 3.892 percentage points higher COD removal rates than their non-boundary counterparts, resulting from production curtailment. This discrepancy stems from the varying intensity of environmental regulations and divergent land supply strategies implemented by local governments, which also shapes distinct regional development patterns. These findings highlight the provincial governments' engagement in strategic behaviors of applying discrepant intensities of constraints and coordination in two types of boundary regions, thus providing implications for addressing the crux in transboundary pollution control. • We disentangle water pollution boundary effects at provincial and city boundaries. • Firms in provincial boundary counties exhibit poorer environmental performance. • Firms in city boundary counties exhibit better environmental performance. • This discrepancy stems from differentiated environmental decentralization modes.