Economic Analysis and Policy

Market segmentation led by “beggar-thy-neighbor” and “local protectionism” among local governments is the deep institutional reason of environmental pollution. Therefore, eliminating market barriers and accelerating regional market integration are important way to achieve green development. This paper develops a theoretical model for analyzing the relationship between market integration and air quality by introducing inter-regional trade cost and game behavior. Based on the panel data of 101 prefecture-level and above cities in the Yangtze River Economic Belt of China, we verify the effect and its mechanism of market integration on air quality. The results show that regional market integration is conducive to improving urban air quality, which is still supported by the robustness test. In terms of regional differences, market integration has a greater effect on air quality in the downstream than in the upstream and midstream. Market integration improves air quality by strengthening scale effect, accelerating industrial structure upgrading and promoting technological progress. Moreover, Environmental regulation and environmental performance assessment facilitates strengthening the air quality improvement effect of market integration. We suggest that China should continually promote market integration in the Yangtze River Economic Belt, strengthen environmental regulation, and establish a reasonable performance evaluation system, so as to build a green development linkage mechanism between environmental protection and economic growth.