Decentralized environmental governance is often undermined by local officials prioritizing short-term growth. Leveraging China's Natural Resources Accountability Audit (NRAA) as a natural experiment, this study investigates whether retrospective green accountability audits can act as a political screening mechanism to shape the market entry of pollution-intensive enterprises.
We develop a theoretical model of pollution enterprise entry that incorporates strategic local government behavior and then proceed with an empirical analysis using data from Chinese cities.
The NRAA creates a formidable entry barrier, reducing the influx of polluting enterprises by 22.2%. This deterrence is driven by a profound realignment of bureaucratic behavior toward stricter environmental enforcement and increased ecological expenditures. Efficacy is amplified when leaders face strong promotion incentives, low fiscal pressure, and robust state capacity. Crucially, while optimizing local market structures, localized accountability inadvertently triggers a spatial spillover, displacing polluting capital to neighboring, less regulated regions.
By demonstrating how green accountability aligns political incentives with sustainability goals, this study offers new insights into fulfilling environmental commitments under centrally planned governance frameworks in emerging economies.
This study presents a novel micro-firm perspective on China's NRAA, distinct from existing macro-focused research. It develops a formal model integrating bureaucratic incentives into enterprise entry frameworks, identifies key mechanisms and boundary conditions, and offers generalizable lessons for emerging economies navigating growth-environment trade-offs.
