Guang Yang, Chenxu Cui, Yong Li, Hui Wang
Watershed Ecological Compensation (WEC) is a vital tool for water environmental governance, yet existing research often focuses on either upstream or downstream regions in isolation, lacking a systematic assessment of basin-wide aggregate effects. Taking China’s Xin’an River Basin as a case study, this paper investigates the impacts of cross-provincial WEC on pollutant emissions, economic performance, and green economic efficiency. Theoretical analysis based on a social welfare maximization framework indicates that WEC helps reduce emissions and enhance green economic efficiency, though its impact on economic output is conditional. Using the Synthetic Control Method (SCM) for empirical analysis, the results show that the policy significantly reduced industrial COD emissions by an average of 111 t/108 m3 per year and notably improved green economic efficiency, with industrial COD emissions per unit of GDP decreasing by 3.5 t per 100 million RMB annually. However, no significant impact on overall basin-wide economic development was observed. Robustness tests using Synthetic Difference-in-Differences (SDID) and staggered DID models further confirm the reliability of these findings. This study provides theoretical and empirical support for the policy effectiveness of WEC in pollution control and green development.