Over the past decade, China has made many remarkable achievements in ecological civilization, but some regions still face the problem of frequent natural disasters. In 2010, the State Council issued the National Functional Zoning Plan, officially defined the national key ecological function zones to protect ecological environment. In September 2016, China issued the Guidelines for the Pilot Program for the Vertical Management Reform of Environmental Monitoring, Inspection, and Law Enforcement below the Provincial Level, which enhanced the supervision capacity of provincial environmental protection departments and the independence of grassroots environmental protection departments. In the national key ecological function zones, environmental quality is high-correlated with economic growth, so it provides an appropriate setting to study the relationship between environmental protection and economic growth.

Based on the data from 2013-2021 China statistical yearbook (County-level), this paper takes the implementation of vertical reform policies as a quasi-natural experiment and employs the DID method to empirically analyze the impact of the reform on economic growth in the national ecological function zones. The findings indicate that the reform has a significantly positive impact on economic growth, with a more pronounced effect observed in areas with a higher degree of environmental decentralization, higher fiscal pressure, impoverished counties, and more afforestation. The vertical reform enhances the independence of grassroots environmental protection departments and promotes environmental quality. The reduction of air and water pollution has a positive impact on the agriculture and tourism, which contributes to economic growth.

This paper discusses the impact of environmental protection on economic growth, enriching the “two mountains” theory. Moreover, the vertical reform adjusts the function of local governments and environmental protection agencies, this paper also provides empirical support for the subsequent comprehensive administrative law enforcement reform of ecological environment protection.