A helping hand for the regulator: The role of industry associations in firm water pollution abatement in China

Abstract

Global industrialization and urbanization have intensified water pollution, posing significant challenges to environmental governance. Formal environmental regulations often face limitations, such as high monitoring costs and frequent circumvention by firms. Thus, it is crucial to explore the complementary role of informal environmental regulation. We use panel data from the Annual Survey of Industrial Firms (ASIF) and the Environmental Survey and Reporting (ESR) database for the period 1998–2013. We employ a staggered difference-in-differences (DID) model and an instrumental variable approach to investigate the impact of industry associations on firms' water pollution abatement. The study finds that after the establishment of an industry association, a firm's chemical oxygen demand (COD) emissions significantly decrease by 9.9%. This effect is more pronounced in regions with lower levels of digital economy development and stronger environmental regulations. Mechanism analysis suggests that industry associations reduce emissions by both lowering COD generation and increasing its removal rate, forming a three-pronged approach: source reduction, process optimization, and end-of-pipe treatment. This study offers a novel perspective and causal evidence for research on informal environmental regulation. It contributes to the theoretical framework of environmental governance and provides theoretical and methodological guidance for future research.