The Chinese government has made strides towards addressing environmental challenges; however, the country still faces a myriad of complex and interconnected environmental problems, such as air and water pollution, soil degradation, and climate change. This study investigates the impact of fiscal decentralization and technological development on environmental sustainability in China across its 30 provinces from 2004–2020.
The findings reveal that fiscal decentralization and technological development are two crucial policy tools for promoting environmental sustainability and mitigating environmental risks. The study employs the DOLS, FMOLS, and PMG methods to examine the impact of fiscal decentralization and technological development on different environmental issues. The results indicate that the contribution of technological development varies depending on the pollutant type and its size cannot be universally applied. Technological developments directly contribute to environmental degradation by increasing the volume of COD discharge, NOX emissions, and SO2 emissions, which reflects the direct impact of technological developments on increasing industrial production.
Moreover, the study shows that government expenditure decentralization contributes to increasing the volume of pollutants, revealing a competition from the bottom to the top among Chinese provinces. The EKC hypothesis test supports an inverted N-shaped EKC hypothesis, which confirms that China's economic development has come at the expense of the environment. Additionally, the D-H causation analysis reinforces this finding.
The study recommends promoting environmental innovations that reduce emissions, building a strategy to support green economic growth, and establishing environmental regulations and standards to prevent competition between local governments for development at the expense of environmental sustainability in Chinese provinces.