Market integration and environmental quality: Evidence from the Yangtze river delta region of China

Based on the panel data of 18 prefecture-level and above cities in the Yangtze River Delta region of China during the period of 2007-2016, this paper uses a relative price approach to calculate the degree of market integration (segmentation), and further adopts the dynamic spatial panel Durbin model and the generalized spatial two-stage least squares method to investigate the effect and its mechanism of market integration on environmental pollution. The results show that the degree of market integration and the total emissions, per capita emissions, and emission intensity of three types of pollutants (i.e., sulfur dioxide, industrial wastewater, and industrial smoke and dust) all show an inverted "U-shaped" curve relationship. When market integration exceeds a certain critical level, market integration will have an emission-reduction effect on these three types of pollutants. Most cities in the Yangtze River Delta region are in an emission-reduction state of market integration. Market integration facilitates strengthening the emission-reduction effects of technological innovation, environmental regulation, and energy efficiency. Moreover, both environmental pollution and market integration have a significant spatial spillover effect. The market integration in neighboring regions is conducive to reducing local pollution emissions. We suggest that China should accelerate market-oriented reform and promote regional market integration, so as to make full use of the emission-reduction effect of market integration.