This study examines the environmental effects of decentralization on water quality in Chinese counties near the border of cities using data from local monitoring stations. Applying the generalized difference-in-difference-in-differences method, this analysis takes the province-managing-county reform as a quasi-natural experiment for decentralization and shows that four indexes of water quality in reformed counties near city borders are 10%-20% better than that of otherwise identical counties. This study suggests that the reform has a positive effect on environments near borders, which is attributed to the mitigation effect of increased public revenue, the mechanization effect of mechanized agriculture, and the home market effect of a narrowed market. By providing an intensive analysis of the three mechanisms, the paper implies that a well-designed decentralization reform can benefit the environment in addition to meeting its economic goals.
Keywords: Decentralization; PMC reform; Water quality.
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