The environmental and economic utility of the third-party governance of environmental pollution in China—an analysis based on the business registration information of enterprises

The third-party governance of environmental pollution (TEG) is a market-oriented mechanism designed to attract social capital to participate in ecological environmental protection. Can this mechanism result in positive and significant environmental and economic effects in developing countries? This paper examines the practical effectiveness of China’s pollution governance system reform by analyzing data on the registered business capital of the environmental protection industry in 285 prefecture-level cities during the period of 2003–2019. The study finds the following: TEG can effectively curb urban pollution emissions and improve the urban green total factor productivity (GTFP) of cities; heterogeneity analysis shows that specialization, marketization, and enterprise nature exert important impacts on its effectiveness; mechanism analysis shows that TEG can restrain pollution emissions by strengthening the tendency toward urban green technology progress; and its effects of releasing the industrial production capacity can be leveraged to improve the quality of economic development.