Understanding the impacts of ecological compensation policy on rural livelihoods: Insights from forest communities of China

Balancing the forest protection with local economic development is a pressing challenge and a key focus of current environmental policies. Ecological compensation programs (ECPs) are often employed in natural-resource dependent communities to address this dilemma. However, the impacts of ECP on local livelihoods remain controversial, and the mechanisms driving these outcomes are not fully understood. We investigate the impacts of an ECP on the livelihoods of rural residents, drawing on survey data collected from forest communities in Zhejiang, China. Using the propensity score matching (PSM) method to address potential self-selection bias, our findings reveal that ECP has significant and positive impacts on local livelihoods. This improvement is primarily attributed to increased income from forestry and gardening, alongside greater livelihood diversification. While non-agricultural livelihoods are increasingly important, agriculture remains a vital source of household's income. Additionally, the benefits of ECP are disproportionately enjoyed by wealthier and younger residents as well as those who are not left behind, suggesting a potential exacerbation of inequality among household groups. In light of these findings, we recommend implementing tailored financial assistance, enhancing training opportunities, and creating specialized employment roles for vulnerable groups, thereby supporting their livelihood transitions, advancing social equality and fostering the sustainable conservation of forest ecosystems.