Do vertical ecological compensation policies promote green economic development: A case study of the transfer payments policy for China's National Key Ecological Function Zones

The transfer payment policy for National Key Ecological Function Zones is a typical vertical ecological compensation (VEC) policy that has been in place in China since 2008. This study treats this VEC policy as a quasi-natural experiment and utilises a slack-based measure model to calculate each county's green economic efficiency based on China's county-level data for the period 2003-2020. Then, the difference-in-differences method is used to evaluate the impact of the VEC policy on green economic efficiency and to verify its possible mechanisms. The results indicate that the VEC policy significantly improves the green economic efficiency of compensated areas, demonstrating that this policy promotes regional green economic development. Moreover, we find that the VEC policy may improve green economic efficiency by reducing the pollution caused by industrial development, promoting eco-industrial development and accelerating technological innovation. From the perspective of realising its three policy goals, the VEC policy not only improves the compensated areas' ecological environment quality, but also promotes economic growth and optimises public services in the compensated areas. Furthermore, an inverted U-shaped curve relationship between the scale of VEC and green economic efficiency is identified.