Does the closure of polluting enterprises improve rural livelihoods? Evidence from rural China

Abstract In response to an increasingly dire pollution scenario, the Chinese government initiated the largest and most extensive environmental inspection campaign in history starting in 2016. Numerous polluting enterprises were closed due to environmental concerns in the rural areas. Drawing on two‐period panel data from the China Rural Development Survey, this study revealed the inherent mechanism of the polluting enterprises closure on local rural livelihoods using the difference‐in‐differences method and structural equation model, with reference to the sustainable livelihood framework. Results showed that shuttering polluting enterprises enhanced rural households' livelihood capital, notably in human, natural, and physical aspects, and promoted labor migration. Additional heterogeneous analysis revealed that the enhancements were notably more pronounced in Southern China and among affluent demographics. Based on the findings, we suggested the local government should support the development of sustainable agriculture and green industries and pay more attention to vulnerable populations when making policy decisions. The use of mandatory directives, such as shutting down polluting enterprises, is a common strategy in developing countries. This study presents an analytical framework for understanding the impact of environmental governance on the livelihoods of rural households in developing countries, contributing to a better balance between rural environmental management and livelihood improvement in these regions.