How does payment for watershed ecosystem services alleviate farmer poverty in conservation intervention areas? Evidence from China

Payment for watershed ecosystem services (PES) has been applied to water conservation and poverty reduction in an increasing number of developing countries. This study evaluates the effect of payment for watershed ecosystem services on farmers’ income in conservation intervention areas using a difference-in-differences model and a panel dataset that covers 18 countries in the Xin’an River Basin in China for fourteen consecutive years (2006–2019). The results show that PES programs increase farmers’ income and that the poverty reduction effect is sustainable. The PES programs mainly increase the farmers’ income in conservation intervention areas through two paths: triggering the transfer of agricultural labor and promoting agricultural restructuring. PES programs are pro-poor and more conducive to increasing the income of farmers in upstream regions and counties with lower levels of economic development. This paper reveals the specific role played by PES in promoting rural poverty reduction in developing countries, providing insights into alleviating the contradiction between poverty and watershed ecosystem protection.