The Impact of the Shan-Shui Initiative on Economic Performance: Evidence from China

Abstract

Large-scale ecological restoration initiatives are increasingly central to global conservation agendas, yet their macroeconomic consequences on regional development remain scarcely debated. Exploiting China’s Shan-Shui Initiative as a quasi-natural experiment, this study systematically evaluates the causal impact of systemic environmental interventions on county-level economic growth. Using a comprehensive county-level panel dataset spanning 2005 to 2022 and a staggered difference-in-differences (DID) design with consideration of heterogeneous treatment effects, we find a significant economic dividend: the implementation of the project increases the GDP of pilot counties by approximately 6.72%. This growth premium is robust to propensity score matching, heterogeneity-robust estimators, and inference under approximately exogenous instruments. Mechanism analysis provides evidence consistent with two potential transmission channels: inter-sectoral factor reallocation—contraction in primary sector activities and expansion in secondary sector output—combined with intra-sectoral ecological development; namely, pollution reduction and the exit of heavily polluting firms. Notably, we find no evidence of significant tertiary sector upgrading and green technological innovation, suggesting that the initial phase relies on fiscal multipliers and regulatory mandates rather than innovation-driven transformation. Heterogeneity analysis further shows that economic benefits are weaker in the northeastern region and poverty-stricken counties, positively moderated by financial development, and dampened by government intervention. Our findings highlight the potential for joint optimization of environmental conservation and economic development while emphasizing the critical role of market-based financial allocation and institutional capacity-building in realizing the value of natural capital.