Financial reform and haze pollution: A quasi-natural experiment of the financial reform pilot zones in China.

Financial reform becomes a new tool for environmental governance because it can indirectly affect the environment by promoting economic and financial agglomeration and technological innovation. Despite China's aggressive financial reform pilot (FRP) policy since 2012, little is known about whether and how such policy affects haze pollution (HP). We exploit geographic and temporal variations in China's FRP policy and compile a dataset covering 284 cities over the period from 2003 to 2019. Employing a difference-in-differences (DID) approach, we document that China's FRP policy has a negative causal effect on HP in the pilot cities. The estimates obtained from an instrumental variable constructed by religious temples also support the haze-abatement effect of such policy. This effect is largely driven by advances in technological innovation and increases in economic agglomeration, while financial agglomeration is proven to have little effect. Finally, our estimate is particularly pronounced in cities with high levels of economic development, financial development and technological innovation, and that in large-sized and non-mineral resourced cities. Overall, our findings shed light on the importance of financial reform in environmental governance in a developing country.
Competing Interests: Declaration of competing interest The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
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