Abstract
This paper investigates how local governments coordinate the relationship between economic growth targets (EGT) and environmental protection targets (EPT) and the impact of such coordination on firm's environmental performance. Using the pollution emission data of China's industrial firms covering 2003 to 2013, we show that firms in the cities where officials are setting overweighted economic growth targets have more sulfur dioxide intensity, while the central government's hard constraints on EPT included in the official performance evaluation system could partially mitigate the environmental externality of the economic growth target. Further, we find that overweighted EGT significantly decreases firms' desulfurization facilities, capacity, and ratio, while the hard constraint of EPT helps mitigate this negative relationship. We also find that the positive relationship between overweight EGT and firm emissions is more pronounced in the dirty industry, while the hard constraint of EPT helps to mitigate this relationship. The above results help to identify an underlying mechanism of environmental regulation. Finally, we show that converting the hard constraints of environmental protection targets to self-constraint by local government officials could reverse the environmental externality of the economic growth target.