Assessing Development Opportunity Loss in River Source Area Based on Comparison of Cumulative Growth Rates of Per Capita GDP

Abstract

River source areas often face stricter environmental protection requirements, leading to external cost and development opportunity losses. Quantifying such losses is essential for designing ecological compensation mechanisms (payment for ecological services). Existing methods often lack scientific rigor and practical feasibility. A method based on the comparison of Cumulative Growth Rates of Per Capita GDP (CGR-PCGDP) is proposed and applied to the water source area of the Middle Route of the South-to-North Water Diversion Project (MR-SNWDP) in China. The method quantifies the fiscal opportunity losses by comparing the CGR-PCGDP between the water source area and a reference area, and deducting growth rate differences before the baseline year. Regions in closer proximity to the Danjiangkou Reservoir—the source point of water diversion—have been found to be more markedly affected by stricter protection policies, resulting in greater development opportunity losses. Shiyan City and Nanyang City experienced annual average fiscal opportunity losses of CNY 569 million and 371 million, respectively, whereas cities farther from the reservoir, such as Hanzhong City, Ankang City, and Shangluo City, incurred lower losses. Compared to traditional approaches, this method avoids overestimation and offers practical, evidence-based results. How factors like geographical location, economic structure, fiscal compensation, and economic transformation capacity affect losses is further discussed, and strategies for balanced development and effective ecological compensation are proposed. The study offers methodological and referential support for the establishment of ecological compensation standards in river source areas.

1. Introduction

The source areas of rivers, especially the water sources of reservoirs or water transfer projects, are facing higher requirements for water conservation. For example, water source protection imposes pressures on economic and social development in source areas of the South-to-North Water Diversion Project (SNWDP) in China, which led to external costs. These costs primarily arise from stringent ecological and environmental regulations, which may restrict traditional agricultural and industrial activities, hinder local economic growth and employment, and increase operational expenses for enterprises. Therefore, it is necessary to implement a mechanism of payment for ecological services, also called ecological compensation, to compensate for the economic losses caused by water source protection, and foster regional coordination and sustainable development.

Ecological compensation mechanisms have gained widespread recognition and have been implemented as effective policy tools [1,2,3]. The core principle of these mechanisms is to compensate for the economic losses incurred during ecological and environmental protection efforts, thereby achieving a balance between ecological preservation and economic development. Over the past two decades, watershed ecological compensation, as an emerging compensation model, has been widely applied in various regions with notable success [4,5,6]. By scientifically assessing and compensating for the ecological environment of watersheds, this approach not only encourages local governments and relevant enterprises to engage in ecological protection but also promotes a win-win outcome for both regional ecological conservation and economic development.

The calculation of compensation standards is a critical technical aspect of establishing ecological compensation mechanisms. Common methods for determining compensation standards include the protection cost method [7], opportunity cost method [7,8], ecosystem service value method [9], water quantity and quality parameter method [10,11], willingness to pay method [12,13], emergy analysis method [14,15], and evolutionary game theory method, etc. [16]. The results derived from these various assessment methods can differ substantially, and isolating the marginal benefits of water source protection is challenging, making the calculated standard difficult for direct application in compensation practices [17]. Compared to watershed ecological compensation, ecological compensation for water diversion projects features clearer relationships between compensation subjects and objects, and the protection requirements for water source areas are more stringent [18]. During the water diversion process, ecological compensation must balance the direct costs of water source protection with the economic opportunity losses [19]. Methods for calculating direct protection costs and development opportunity losses can provide significant practical value for ecological compensation for water diversion.

In calculating compensation standards for water source protection, direct protection costs, such as investments in forest protection, soil erosion control, and water pollution prevention, are relatively easier to be quantified. The primary challenge, however, lies in assessing development opportunity losses. These losses refer to the potential economic growth due to the restriction or abandonment of certain economic activities for ecological protection. Quantifying this loss is crucial to ensuring the fairness and effectiveness of ecological compensation. To address this, scholars have developed various assessment methods. One common approach is to quantify development opportunity losses in the agricultural and industrial sectors by comparing economic activities before and after the implementation of ecological protection measures. For instance, agricultural opportunity losses are typically calculated by assessing the impact of land use changes on potential production yields. When agricultural land is converted to protected areas, the resulting decline in agricultural output reflects the economic loss, representing the opportunity cost of agriculture [5]. Similarly, opportunity losses in the industrial sector are evaluated by analyzing the impact of ecological protection measures on industrial activities, particularly the loss of revenue from industrial projects and production activities that cannot be conducted [20]. However, relying solely on the calculation of agricultural and industrial opportunity losses often fails to capture the full scope of ecological protection’s multidimensional impacts. Moreover, obtaining systematic data for a large number of restricted development targets on a regional scale is difficult and impracticable. To overcome this limitation, many studies have incorporated factors such as social development costs for a more comprehensive evaluation [21,22]. These integrated methods provide a more holistic assessment, better reflecting the comprehensive impacts of ecological protection on regional economies and societies. Additionally, regional economic differences are a critical factor in evaluating development opportunity losses. By comparing economic indicators such as GDP, per capita income, and fiscal revenue across different regions, studies can highlight variations in economic losses under ecological protection measures [23,24]. This approach is particularly relevant for cross-regional ecological compensation, as it effectively illustrates the economic pressures faced by different regions during the ecological protection process and offers a basis for regional compensation standards. In some cases, assessment methods combine the quantification of ecosystem service values with total cost accounting. By evaluating ecosystem service values, studies can compare the ecological benefits of ecological protection with the associated economic losses, thereby revealing the dual effects of ecological protection [25,26]. This approach not only quantifies the direct costs of ecological protection but also captures the potential value of ecosystem services [18,27]. Overall, the methods for assessing development opportunity losses have become increasingly diversified. Researchers have expanded their focus from opportunity losses in agriculture and industry to more comprehensive evaluations that incorporate regional differences and ecosystem service values. The integration of these methods has grounded the formulation of ecological compensation standards in more solid scientific principles, ensuring both fairness and practical applicability. Despite the significant progress, current research still faces several limitations. Traditional assessment methods, for instance, often rely on direct comparisons of GDP levels between the study and reference areas, neglecting the impact of regional economic backgrounds and growing velocities. This leads to an overestimation of development opportunity losses, limiting the practical application of these methods in ecological compensation.

In summary, enhancing the accuracy and practicality of development opportunity loss estimation methods remains a critical challenge in ecological compensation research for water source areas. This study aims to bridge this gap by proposing a novel method based on the Comparison of Cumulative Growth Rates of Per Capita GDP (CGR-PCGDP). Our central hypothesis is that the economic impact of protection policies can be isolated by comparing post-policy growth trajectories against a reference region, after controlling for pre-existing growth differentials. The proposed CGR-PCGDP comparison method is developed and applied to five representative municipalities within the water source area of the MR-SNWDP—namely, Shiyan (in Hubei Province), Nanyang (in Henan Province), and Shangluo, Ankang, and Hanzhong (in Shaanxi Province). By comparing the CGR-PCGDP between reference area and water source area, this method quantifies the development opportunity losses resulting from water source protection measures. The proposed approach offers a more precise evaluation of economic activity losses in water source areas, providing a scientific foundation for formulating applicable ecological compensation standards.

The structure of this paper is organized as follows. Section 2 provides an overview of the study area, including its geographical and policy context. Section 3 details the methodology and data sources used for assessing development opportunity loss based on the CGR-PCGDP comparison method. Section 4 presents the empirical results of fiscal opportunity losses across different regions within the water source area. Section 5 discusses the influencing factors, compares the proposed method with conventional approaches, and proposes strategies for balancing ecological protection and economic development. Finally, Section 6 concludes the study and outlines policy implications.

2. Study Area

The MR-SNWDP was constructed to transfer water from the Han River, a major tributary of the Yangtze River, to water-scarce regions in north China, particularly the Beijing-Tianjin-Hebei area (Figure 1). Since it commenced operations in December 2014, a cumulative water diversion quantity exceeded 68 billion m³ [28]. The project has effectively alleviated water shortages in north China.

The Danjiangkou Reservoir and its upstream constitute the water source area for the MR-SNWDP. This area is primarily traversed by the Han River and Dan River. The area has a subtropical monsoon climate, with an annual average precipitation of 904 mm. However, rainfall is unevenly distributed throughout the year, with the majority occurring between July and September. The annual average runoff in the upstream basin of the Danjiangkou Reservoir is 36.78 billion m³. The area has a forest coverage rate of approximately 34%.

To ensure the water quality safety of the MR-SNWDP while balancing economic and social development with ecological and environmental protection in the water source area, the State Council of China has successively implemented a series of water pollution prevention and soil conservation plans since 2006. These initiatives have significantly advanced the implementation of water ecological protection policies in water source area. Considering the different impacts of different regions on the water quality of the Danjiangkou Reservoir, the reservoir and its upstream areas have been classified into three management zones (Figure 2): the Water Source Safety Guarantee Zone (WSSGZ), the Water Quality Impact Control Zone (WQICZ), the Water Conservation and Ecological Construction Zone (WCECZ) [29]. Each zone is governed by distinct management measures. The WSSGZ includes the Danjiangkou Reservoir and its surrounding regions. Centered on the reservoir’s drinking water source protection area, this zone emphasizes the comprehensive reduction in various pollution loads and strengthened control of water pollution risks. The WQICZ includes the Du River basin upstream of the Huanglongtan Reservoir in Hubei Province, as well as the section of the Han River from upstream of Baihe County to downstream of Ankang Reservoir in Shaanxi Province, both of which have a direct impact on the inflow water quality. Management priorities in this zone include reducing total nitrogen loads, strengthening pollution control in livestock and poultry farming, minimizing pesticide and fertilizer use, and enhancing urban environmental infrastructure. The WCECZ includes the Han River basin upstream of the Ankang Reservoir. Main tasks in this zone focus on controlling soil erosion, implementing the restoration of farmland to forests and grasslands, and systematically advancing urban environmental infrastructure development in key towns, county-level administrative areas along the main stem of the Han River, and other designated regions. These efforts aim to enhance water conservation capacity.

Water source protection policies impose restrictions on economic activities, creating significant challenges for the socio-economic development of the water source area. The policy mandates that the water quality of the Danjiangkou Reservoir must remain stable at the Class II surface water standard (According to China’s national standard, Environmental Quality Standards for Surface Water (GB3838-2002), Class II water quality is applicable to primary protection zones of centralized drinking water surface sources, habitats of rare aquatic organisms, spawning grounds for fish and shrimp, and feeding areas for juvenile fish. After undergoing purification processes such as flocculation, sedimentation, filtration, and disinfection, this type of water can be used as drinking water.) [30], while the water quality of major tributaries directly flowing into the reservoir must not fall below the Class III standard (Class III water quality is applicable to secondary protection zones of centralized drinking water surface sources, wintering grounds for fish and shrimp, migratory channels, aquaculture areas, and recreational swimming zones. This type of water requires advanced treatment before it can be used for domestic drinking purposes.) [30]. These stringent water quality protection requirements profoundly impacted industrial, agricultural, and other economic activities in the region. In the industrial sector, traditional high-pollution and high-water-consumption industries, such as papermaking and chemical manufacturing, were subject to strict regulations, limiting further expansion and slowing economic growth. In the agricultural sector, farming practices were lack of refined environmental management. These challenges hinder compliance with the environmental sustainability requirements of water source protection. Although the study area is rich in natural resources, the strict enforcement of water protection policies significantly constrained both traditional industrial and agricultural development models, as well as the expansion of certain emerging industries.

Since 2020, the socioeconomic conditions of the study area have been significantly affected by the COVID-19 pandemic, rendering data from this period incomparable to pre-pandemic years. To ensure data stability and analytical validity, this study focuses on the period from 2000 to 2019. Using Shiyan City, the core area of the WSSGZ, as a case study, Figure 3 presents a comparison of PCGDP (at current year prices) between Shiyan City and Hubei Province from 2000 to 2019. The implementation of water source protection policies has profoundly influenced the economic development of Shiyan City. Before the comprehensive enforcement of Danjiangkou Reservoir and upstream protection policies in 2005, the PCGDP growth rate of Shiyan City closely followed that of Hubei Province. However, as protection policies were gradually implemented, Shiyan City significantly increased its investment in environmental protection while imposing stringent restrictions on industries with potential environmental risks. Between 2006 and 2010, for instance, Shiyan City shut down more than 130 heavily polluting small enterprises, closed 69 locally distinctive yellow ginger processing plants, and rejected over 50 projects that, despite their economic benefits, posed pollution risks. While these measures effectively safeguarded water quality, they also constrained local economic growth, gradually widening the Per Capita GDP gap between Shiyan City and Hubei Province.

3. Method and Data Sources

This study put forward a method for assessing development opportunity loss by comparing CGR-PCGDP, offering comprehensively evaluation on the economic impact of water diversion projects on water source areas. To account for the differences before and after the implementation of water source protection policies or the construction of water diversion projects, this study proposes a comparative analysis approach based on a baseline year and a reference area. The detailed calculation process is illustrated in Figure 4.

Let $S$ denote the baseline year, defined as the year preceding the implementation of development restrictions due to water source protection. The calculation of development opportunity loss starts from the first year following the baseline year. The dimensionless CGR-PCGDP index is defined as follows:

$$V={\displaystyle \frac{{\displaystyle \prod _{t=1}^{n+1}{I}_{s+t}}}{{100}^{n+1}}}, n=0,1,2,\dots$$

(1)

where $V$ is the dimensionless CGR-PCGDP index for the target year; $I_{s+t}$ is the Per Capita GDP index of the given region in year $s+t$, with the baseline set to $I_s=100$; $n$ indicates the number of years elapsed since the first year after the baseline year, thus the target year is $s+n+1$; The denominator ${100}^{n+1}$ ensures the standardized normalization of the index. It is particularly important to note that $n$ represents the cumulative number of years since the first year after the baseline year. For example, if the baseline year is 2005, then: when $n=0$, the corresponding calculation year is 2006; when $n=1$, the corresponding calculation year is 2007; and so forth.

When estimating the development opportunity loss, it is essential to account for the background growth rate difference between the reference area and the water source area, including the baseline year itself and the preceding years. This difference can be expressed as:

$$\Delta V={\displaystyle \frac{{\displaystyle \sum _{t=0}^m\left(I_{b,s-t}-I_{a,s-t}\right)}}{100(m+1)}}, m=0,1,2,\dots$$

(2)

where $\Delta V$ is the background growth rate difference; $I_{b,s-t}$ is the Per Capita GDP index of the reference area in year $s-t$; $I_{a,s-t}$ is the Per Capita GDP index of the water source area in year $s-t$; $m$ is the number of years traced back. The denominator $100(m+1)$ ensures normalization and averaging across the $(m+1)$ years. Specially, when $m=0$, the summation contains only one term corresponding to the baseline year, in which case: $\Delta V={\displaystyle \frac{I_{b,s}-I_{a,s}}{100}}$.

The constraints imposed by water source protection on local economic growth are mainly appeared to be government fiscal revenue, corporate earnings, and household income. According to the application of fiscal transfer payments, this study adopts a conservative approach, focusing solely on the impact of economic development restrictions on local fiscal revenue losses. To quantify this impact, a compensation coefficient is introduced, defined as the ratio of fiscal revenue to GDP in the water source area:

$$\mathrm{\alpha }={\displaystyle \frac{R_a}{G_a}}\times 100\%$$

(3)

where $\mathrm{\alpha }$ is the compensation coefficient, determined by the ratio of fiscal revenue to GDP in the water source area; $R_a$ is the fiscal revenue of the water source area; $G_a$ is the GDP of the water source area.

Finally, the development opportunity loss caused by water source protection in water source area for each year after the baseline year can be calculated as follows:

$$L=\overline{\mathrm{\alpha }}\times P_s\times \left(V_b-V_a-\Delta V\right)\times N_a$$

(4)

where $L$ is the development opportunity loss of the water source area; $\overline{\mathrm{\alpha }}$ is the multi-year average value of the compensation coefficient; $V_b$ is the dimensionless CGR-PCGDP of the reference area; $V_a$ is the dimensionless CGR-PCGDP of the water source area; $P_s$ is the Per Capita GDP of the water source area in the baseline year; $N_a$ is the population of the water source area in the given year.

To effectively promote water pollution control and soil conservation in the Danjiangkou Reservoir and its upstream area, China’s National Development and Reform Commission, in collaboration with other relevant ministries, formulated the Plan for Water Pollution Control and Soil Conservation in the Danjiangkou Reservoir Area and Its Upstream Regions in 2005. Following approval by the State Council of China, the plan was officially implemented in early 2006. Consequently, this study designates 2005 as the baseline year preceding the implementation of development restrictions. This choice ensures a clear demarcation of the policy shock: 2005 reflects the last unaffected pre-policy state, while earlier years lack policy context and subsequent years already incorporate policy impacts, making them unsuitable for capturing the counterfactual scenario. Previous studies typically selected reference areas that shared similar natural conditions, governance frameworks, and socio-cultural backgrounds with the water source area but were not subject to economic constraints due to ecological protection. By comparing the economic differences in these regions, the impact of ecological protection policies can be assessed. In this study, the provincial average of each water source area’s respective province is chosen as the reference. Since the water source areas share similar policy environments, infrastructure, and market conditions with their respective provinces, this selection enables evaluation of the actual constraints imposed by ecological protection policies on economic development, particularly regarding industrial restructuring and growth rates. Specifically, Shiyan City was compared with Hubei Province. Nanyang City was compared with Henan Province, and Shangluo City, Ankang City, and Hanzhong City were compared with Shaanxi Province.

The data used to calculate development opportunity loss are derived from the statistical yearbooks (2001–2020) of Hubei Province, Henan Province, and Shaanxi Province, as well as Shiyan City, Nanyang City, Shangluo City, Ankang City, and Hanzhong City.

4. Results

4.1. Dimensionless CGR-PCGDP

The year 2005 is identified as the baseline year, preceding the enforcement of development restrictions, and development opportunity losses are subsequently evaluated from 2006 onwards. The first step involves computing the dimensionless CGR-PCGDP for regions in the water source area and its corresponding reference area. The results are presented in

Table 1. The dimensionless CGR-PCGDP for regions in the water source area and their corresponding reference areas.

Year	Shiyan City	Hubei Province	Nanyang City	Henan Province	Shangluo City	Ankang City	Hanzhong City	Shaanxi Province
2006	1.085	1.133	1.128	1.138	1.086	1.095	1.107	1.12
2007	1.268	1.300	1.263	1.305	1.213	1.231	1.250	1.277
2008	1.404	1.472	1.452	1.459	1.377	1.402	1.399	1.461
2009	1.575	1.671	1.582	1.608	1.553	1.594	1.599	1.634
2010	1.851	1.915	1.747	1.809	1.767	1.819	1.843	1.857
2011	2.021	2.178	1.944	2.037	1.994	2.070	2.103	2.096
2012	2.187	2.411	2.156	2.243	2.265	2.382	2.404	2.346
2013	2.415	2.647	2.350	2.443	2.523	2.678	2.690	2.585
2014	2.646	2.896	2.571	2.655	2.768	2.967	2.986	2.825
2015	2.863	3.130	2.810	2.867	3.064	3.317	3.260	3.032
2016	3.101	3.365	3.035	3.088	3.330	3.652	3.531	3.244
2017	3.399	3.614	3.235	3.317	3.603	3.999	3.849	3.477
2018	3.647	3.889	3.488	3.556	3.881	4.375	4.203	3.735
2019	3.913	4.168	3.735	3.787	4.087	4.711	4.468	3.936

Note: The dimensionless CGR-PCGDP value for 2005 (the baseline year) is 1.

. Between 2006 and 2019, the CGR-PCGDP values of Shiyan City and Nanyang City were generally lower than those of their respective provinces. By 2019, the CGR-PCGDP values for these two cities were 3.913 and 3.735, both lower than those recorded for Hubei Province (4.168) and Henan Province (3.787), respectively. For Shangluo City, Ankang City, and Hanzhong City, their CGR-PCGDP values remained below that of Shaanxi Province during the 2006–2010 period, when strict development restrictions were enforced. However, after 2010, the gap between these cities and Shaanxi Province gradually narrowed. This trend suggests that while the stringent protection policies introduced in 2006 initially constrained economic growth in these cities for the first five years, their restrictive effects diminished after 2015, following the implementation of support policies for the water source area.

4.2. Background Growth Rate Difference Before the Baseline Year

The annual growth rate differences between each reference area and its corresponding region in the water source area were calculated for the period 2000–2005. The multi-year average of these differences was then used to determine the background growth rate difference before the baseline year. The computed values for Shiyan City, Nanyang City, Shangluo City, Ankang City, and Hanzhong City were 0.0013, 0.0032, 0.0297, 0.0335, and 0.0297, respectively, with the previous year set as 1. Detailed results are presented in

Table 2. The background growth rate difference between Hubei Province and Shiyan City.

Year	Current Year Growth Rate (with the Previous Year Set as 1)		Annual Growth Rate Difference	Background Growth Rate Difference
	Hubei Province	Shiyan City	Hubei and Shiyan
2000	1.11	1.124	−0.014	0.0013
2001	1.116	1.134	−0.018
2002	1.089	1.137	−0.048
2003	1.094	1.035	0.059
2004	1.105	1.164	−0.059
2005	1.119	1.031	0.088

,

Table 3. The background growth rate difference between Henan Province and Nanyang City.

Year	Current Year Growth Rate (with the Previous Year Set as 1)		Annual Growth Rate Difference	Background Growth Rate Difference
	Henan Province	Nanyang City	Henan and Nanyang
2000	1.101	1.066	0.035	0.0032
2001	1.085	1.094	−0.009
2002	1.089	1.091	−0.002
2003	1.096	1.106	−0.01
2004	1.142	1.151	−0.009
2005	1.139	1.125	0.014

and

Table 4. The background growth rate difference between Shaanxi Province and Shangluo City, Ankang City, Hanzhong City, respectively.

Year	Current Year Growth Rate (with the Previous Year Set as 1)				Annual Growth Rate Difference			Background Growth Rate Difference
	Shaanxi Province	Shangluo City	Ankang City	Hanzhong City	Shaanxi and Shangluo	Shaanxi and Ankang	Shaanxi and Hanzhong	Shangluo City	Ankang City	Hanzhong City
2000	1.096	1.1	1.056	1.075	−0.004	0.04	0.021	0.0297	0.0335	0.0297
2001	1.093	1.06	1.061	1.059	0.033	0.032	0.034
2002	1.108	1.115	1.085	1.07	−0.007	0.023	0.038
2003	1.115	1.067	1.08	1.08	0.048	0.035	0.035
2004	1.127	1.066	1.087	1.095	0.061	0.04	0.032
2005	1.118	1.071	1.087	1.1	0.047	0.031	0.018

.

4.3. Compensation Coefficient

According to Equation (3), the ratio of fiscal revenue to GDP for the regions in water source area from 2000 to 2019 was calculated. As shown in

Table 5. Compensation coefficient of the regions in water source area.

Year	Shiyan City	Nanyang City	Shangluo City	Ankang City	Hanzhong City
2000	0.0801	0.0377	—	0.0698	—
2001	0.0721	0.0371	—	0.0759	—
2002	0.0895	0.0306	—	0.0672	—
2003	0.0950	0.0313	—	0.0829	—
2004	0.0940	0.0315	0.0295	0.0867	0.0841
2005	0.1021	0.0301	0.0472	0.0695	0.0788
2006	0.1008	0.0351	0.0554	0.0809	0.0810
2007	0.0912	0.0384	0.0709	0.1067	0.0812
2008	0.0919	0.0373	0.0759	0.1085	0.0944
2009	0.0997	0.0425	0.0791	0.1116	0.0913
2010	0.1156	0.0541	0.0804	0.1113	0.0911
2011	0.1257	0.0706	0.0805	0.1098	0.1026
2012	0.1264	0.0778	0.0871	0.1071	0.1036
2013	0.1083	0.0818	0.0847	0.0973	0.0957
2014	0.1100	0.0875	0.0802	0.0978	0.0924
2015	0.1057	0.0924	0.0802	0.0981	0.0968
2016	0.1029	0.0915	0.0691	0.0949	0.0943
2017	0.1017	0.0888	0.0600	0.0896	0.0879
2018	0.0966	0.0880	0.0541	0.0968	0.0840
2019	0.0909	0.0867	0.0468	0.1063	0.0830
Multi-year Average value	0.1048	0.0695	0.0676	0.0934	0.0901

Note: The “—“ indicates the year with a negative difference between cumulative growth rates of the reference area and its corresponding region in the water source area.

, the multi-year average values of the compensation coefficient were calculated, yielding results of 0.1048, 0.0695, 0.0676, 0.0934, and 0.0901 for Shiyan City, Nanyang City, Shangluo City, Ankang City, and Hanzhong City, respectively.

4.4. Fiscal Opportunity Loss

Fiscal opportunity losses for each region in the water source area from 2006 to 2019 were calculated using the CGR-PCGDP comparison method (Equation (4), at constant price in 2005), as shown in

Table 6. Development opportunity losses in water source area from 2006 to 2019 (Unit: CNY 100 million).

Year	Shiyan City	Nanyang City	Shangluo City	Ankang City	Hanzhong City	Total
2006	1.50	0.45	0.03	—	—	1.98
2007	0.95	2.58	0.25	0.15	—	3.93
2008	2.14	0.30	0.39	0.29	0.58	3.7
2009	3.02	1.53	0.37	0.08	0.11	5.11
2010	2.04	4.04	0.43	0.05	—	6.56
2011	5.12	6.12	0.52	—	—	11.76
2012	7.36	5.66	0.37	—	—	13.39
2013	7.67	6.03	0.23	—	—	13.93
2014	8.26	5.42	0.20	—	—	13.88
2015	8.86	3.61	—	—	—	12.47
2016	8.81	3.36	—	—	—	12.17
2017	7.21	5.26	—	—	—	12.47
2018	8.11	4.33	—	—	—	12.44
2019	8.55	3.23	—	—	—	11.78

Note: The “—“ indicates the year with a negative difference between cumulative growth rates of the reference area and its corresponding region in the water source area.

. Between 2006 and 2019, the total development opportunity loss across the five regions showed a fluctuating upward trend before gradually stabilizing, reflecting the progressive implementation of water source protection policies and their sustained impact on economic development. In 2006, the total loss for the five regions was CNY 198 million. Over the following years, the loss fluctuated before increasing significantly in 2010. By 2013, the total loss had risen to CNY 1393 million, representing a substantial growth. In subsequent years, the total development opportunity loss in the water source area remained relatively stable, fluctuating within the range of CNY 1200–1300 million. By 2019, the total loss was CNY 1178 million. Hanzhong, Ankang, and Shangluo are relatively far from the Danjiangkou Reservoir. The calculated loss values for some years were negative, indicating that the losses from restricting development in these areas were relatively lower. As the economy developed, the losses in these areas were no longer significant.

Figure 5 illustrates the comparison of the development opportunity loss in each year and annual average development opportunity loss in each stage of the regions in water source area. At the municipal level, the development opportunity loss in Shiyan City exhibited a significant upward fluctuation before gradually stabilizing. After 2010, the increase became particularly pronounced, rising from CNY 204 million in 2010 to CNY 855 million in 2019—more than a fourfold increase. In contrast, Nanyang City followed a more complex process. Between 2006 and 2011, its development opportunity loss displayed a fluctuating upward trend, peaking at CNY 612 million in 2011. However, after this peak, the loss began to decline intermittently, reaching CNY 323 million by 2019. For Shangluo City, Ankang City, and Hanzhong City, overall development opportunity losses remained relatively low. In Shangluo City, the loss rose from CNY 3 million in 2006 to a peak of CNY 52 million in 2011, after which it declined annually. In Ankang City, the CGR-PCGDP difference relative to Shaanxi Province was positive between 2007 and 2010, resulting in development opportunity losses of CNY 15 million in 2007, CNY 29 million in 2008, CNY 8 million in 2009, and CNY 5 million in 2010, demonstrating an initial increase followed by a decline. Between 2006 and 2019, the CGR-PCGDP difference in Hanzhong City was negative for most years, except in 2008 and 2009, when it turned positive. The corresponding development opportunity losses for these two years were CNY 58 million in 2008 and CNY 11 million in 2009.

Shiyan City experienced the most significant losses across all phases. Between 2011 and 2015, the loss reached CNY 745 million per year. From 2016 to 2019, it further increased to CNY 817 million per year. In Nanyang City, the loss amounted to CNY 178 million per year during 2006–2010, and it increased substantially to CNY 537 million per year during 2011–2015, making it one of the cities with the largest losses during this phase. However, from 2016 to 2019, Nanyang’s loss decreased to CNY 405 million per year. In contrast, Hanzhong City and Ankang City experienced relatively smaller losses during 2006–2010, with CNY 14 million per year and CNY 11 million per year, respectively. Shangluo City incurred a loss of CNY 29 million per year during the same period. The development opportunity loss in Shangluo City slightly decreased during 2011–2015, amounting to CNY 26 million per year.

Table 7. The annual average development opportunity losses in water source area from 2006 to 2019 (Unit: 100 million CNY).

	Shiyan City	Nanyang City	Shangluo City	Ankang City	Hanzhong City
Annual average development opportunity loss	5.69	3.71	0.14	0.03	0.04

presents the annual average development opportunity loss for each region in water source area. Among them, Shiyan City and Nanyang City experience significantly higher losses, averaging CNY 569 million and CNY 371 million per year, respectively. This suggests that these two regions face substantial challenges in balancing water source protection with economic development. In contrast, the annual average development opportunity losses in Shangluo, Ankang, and Hanzhong, all located in Shaanxi Province, were relatively lower. Ankang City experienced the lowest loss at CNY 3 million per year, indicating a more effective balance between water source protection and economic growth. Hanzhong City followed with an annual average loss of CNY 4 million, slightly exceeding that of Ankang. Shangluo City had an annual average development opportunity loss of CNY 14 million, which, although higher than in Hanzhong and Ankang, remains relatively low.

5. Discussions

5.1. Factors Influencing Development Opportunity Loss in Water Source Area

5.1.1. Geographical Location

In the context of water diversion projects and inter-basin water allocation, the enforcement of water source protection policies is closely tied to water quality, ecological conservation requirements, and water resource allocation pressures, collectively contributing to the development opportunity loss. As shown in Figure 2, the water source area of the MR-SNWDP is divided into three primary zones: the WSSGZ, the WQICZ, the WCECZ. Management policies for these zones differ, often corresponding to their distance to the Danjiangkou Reservoir. Areas nearer to the reservoir are subject to stricter protection policies, imposing greater constraints on economic development and leading to more pronounced development opportunity losses. In contrast, areas farther from the reservoir experience relatively fewer restrictions.

Shiyan City and Nanyang City, located near the Danjiangkou Reservoir, are located within the WSSGZ and the WQICZ, bearing primary responsibility for water source protection. These regions enforce the most stringent water protection policies, encompassing pollution control, industrial restructuring, and restrictions on agricultural activities. Given the irreplaceable role of the Danjiangkou Reservoir as a drinking water source, these policies are particularly strict, involving pollution load reduction, and enhanced water pollution risk management. Consequently, these measures have resulted in considerable economic losses for Shiyan City and Nanyang City. Shiyan City experienced an annual average development opportunity loss amounting to 569 million CNY, significantly higher than that in other regions. Similarly, Nanyang City has faced with an annual average development opportunity loss of 371 million CNY. In contrast, Shangluo City, Ankang City, and Hanzhong City, located farther from the Danjiangkou Reservoir, fall within the WQICZ and the WCECZ. These areas are subject to relatively lenient water protection policies, imposing fewer constraints on economic activities and resulting in lower development opportunity loss. These regional disparities reflect the variability in local governments’ enforcement of water source protection policies and emphasize the differing economic impacts of geographical location and policy stringency.

5.1.2. Local Economic Structure

The characteristics of the local economic structure are one of the key factors influencing the extent of development opportunity loss in the water source area. The industrial structure and economic development model of the area hosting the water source directly determine the extent to which water source protection policies impact economic activities. For instance, areas engaged in agriculture, livestock and poultry breeding, and traditional industries may face restrictions on agricultural production and land use due to water source protection policies, leading to substantial economic losses. In contrast, areas dominated by low-pollution industries and services, although still impacted by protection policies, generally experience fewer restrictions. Moreover, these areas may offset the losses through alternative measures, such as ecological compensation or the development of green industries.

Taking Shiyan City and Nanyang City as examples, Figure 6 illustrates the evolution and stark contrast of their industrial structures. Shiyan’s economy was highly reliant on the secondary industry (manufacturing), with the value-added of the secondary industry accounting for 48.3% of its GDP in 2000. This share decreased to 44.7% in the first year of policy implementation (2006) and further to 43.9% by 2019. This structural dependence meant that stringent water source protection policies, which required industrial production to adopt more environmentally friendly methods, directly increased production costs and constrained output in its dominant sector, thereby exerting a significant drag on local economic growth. Simultaneously, restrictions on agricultural practices, particularly regarding the use of fertilizers and pesticides, constrained the development of the primary industry, whose share of GDP contracted markedly from 14.1% in 2000 to 8.5% in 2019. In contrast, Nanyang City exhibited a more diversified and dynamic industrial structure. Although its secondary industry also constituted a substantial portion, its tertiary industry (services) demonstrated significant growth potential, with its share of GDP increasing from 25.0% in 2000 to 51.4% in 2019. Leveraging its natural landscapes and unique historical and cultural resources, Nanyang City vigorously developed eco-tourism, created a series of tourism products, and promoted the integration of agricultural, forestry, and water-based tourism. These measures, focused on the less restricted service sector, have not only generated sustained green benefits but also contributed to steady income growth for the local population. Consequently, by diversifying its economic structure and embracing green development concepts, Nanyang City achieved better economic sustainability under the stringent water source protection policies, which is a key factor in its more effective mitigation of economic losses compared to Shiyan City.

5.1.3. Fiscal Compensation and Economic Transition Capacity of Local Governments

The fiscal compensation and economic transformation capacity of local governments are crucial in determining the extent of development opportunity losses in water source areas. The enforcement of water source protection policies frequently restricts local economic activities. To mitigate these effects, local governments often implement fiscal compensation strategies, including fiscal transfers and ecological compensation funds, to counterbalance economic losses induced by water source protection. Regarding economic transformation, Ankang City has successfully alleviated the adverse economic effects of water source protection by optimizing its industrial structure and fostering the green economy [31]. Between 2015 and 2019, the total industrial output of Ankang’s six major green industries, including selenium-enriched food, new materials, equipment manufacturing, biopharmaceuticals, clean energy, and textile silk, reached 109.491 billion CNY, reflecting a 38.36% increase from 2015. These industries constituted 78.87% of the city’s total industrial output above the designated scale. Notably, the selenium-enriched food industry maintained an average annual growth rate of 12.64%, whereas the equipment manufacturing industry expanded at 13.45% annually, emerging as key drivers of economic transformation. Furthermore, Ankang City has made substantial advancements in the agricultural sector. From 2015 to 2019, the output of economic crops, including vegetables, edible fungi, Chinese medicinal herbs, and tea, expanded steadily, reflecting the effectiveness of agricultural structural optimization and green development. Additionally, Ankang City has proactively developed eco-tourism and environmentally friendly enterprises, guiding its economic structure toward sustainability and ecological balance.

In summary, the development opportunity loss in a region is not determined by a single factor, but results from the combined effects of multiple aspects such as geographical location, economic structure, and fiscal and transformative capacity. This comprehensive framework also provides a clear explanation for the negative development opportunity losses (denoted by “-“ in Table 6) observed in certain years for cities like Ankang, Hanzhong, and Shangluo. These negative values, indicating that their cumulative growth rates temporarily exceeded the provincial average, are not data anomalies but rather evidence of successful mitigation strategies. They occur in regions that, despite being farther from the Danjiangkou Reservoir and facing fewer direct restrictions (Geographical Factor), possess or have developed an economic structure conducive to green growth (Economic Structure Factor), and have effectively leveraged fiscal compensation to fuel a transition towards eco-friendly industries (Policy Capacity Factor). For instance, Ankang’s strategic development of its selenium-enriched food and eco-tourism sectors exemplifies how synergistic policy support and structural transformation can not only offset development opportunity losses but also temporarily reverse them, creating periods of relative economic advantage. This underscores the importance of sustained and targeted policy interventions in balancing ecological protection with economic development.

5.2. Comparative Analysis with Conventional Calculation Methods

We compared the conventional PCGDP direct comparison method, widely used in previous assessments of development opportunity losses, with the CGR-PCGDP comparison method employed in this study. As illustrated in Figure 7, taking Shiyan City as a case study, the conventional method, which directly compares the per capita GDP of the water source area and the reference area, yields significantly higher estimates of development opportunity losses than the CGR-PCGDP comparison method proposed in this study. Furthermore, the disparity between the results obtained from these two methods progressively increases over time. The conventional approach directly contrasts PCGDP without considering the background growth rate difference between the water source area and the reference area before the implementation of development restrictions. Consequently, this method tends to overestimate development opportunity losses, often amounting to billions of CNY, with a persistently high growth rate, making it not applicable to compensation practices. According to government statistics, between 2008 and 2017, the central government allocated an annual average transfer payment of CNY 642 million to the water source area of Hubei Province [32]. Additionally, financial support was provided through transfer payments and a targeted cooperation mechanism between water-receiving and water source areas. These funds were primarily utilized to subsidize ecological protection costs and promote the development of the ecological economy, thereby partially mitigating the economic losses induced by water source protection policies.

Based on the calculation results obtained using the CGR-PCGDP comparison method proposed in this study, Shiyan City, as a designated water source area, has consistently experienced development opportunity losses despite receiving financial support. Since 2006, these losses initially escalated before gradually stabilized, suggesting that existing compensation policies require further refinement. The current compensation mechanisms remain insufficient and fail to adequately support the region’s economic development. Notably, the results of this study exhibit a closer alignment with the actual compensation amounts allocated in practice, thereby providing a more accurate estimation of the development opportunity losses incurred by Shiyan City due to water source protection policies.

The analytical approach based on CGR-PCGDP comparison, as proposed in this study, primarily examines fiscal revenue losses without considering other economic losses, such as income of enterprises and household incomes. Further efforts for data collection and processing are needed in order to fully assess the integrated economic and social impacts of water source protection policies.

5.3. Balancing Strategies Between Ecological Protection and Economic Development

Water source protection policies play a critical role in preserving water quality and ensuring the sustainability of regional ecosystems through rigorous ecological conservation measures, including soil erosion control, vegetation restoration, and pollution management. However, these policies simultaneously impose constraints on regional economic activities. Land use restrictions represent a primary limiting factor, particularly in agriculture-dependent areas, where stringent controls on land development reduce the availability of arable land, thereby affecting agricultural production and local economic growth. Furthermore, industrial restructuring necessitates a reduction in high-pollution and high-energy-consuming industries while fostering a transition toward low-carbon and environmentally sustainable sectors. This transition, however, may result in a short-term economic slowdown, particularly in resource-dependent regions, where production capacity may decline. Additionally, water source protection policies restrict resource development, leading to reduced local fiscal revenue and limiting investments in public services and infrastructure. These factors collectively intensify the inherent conflict between environmental protection and economic development.

To mitigate the conflict between water source protection and economic development, the following policy measures can be implemented:

(1)

Enhance financial transfers and economic compensation for areas experiencing significant development opportunity losses, such as Shiyan City and Nanyang City. Increased fiscal support can help alleviate financial pressures and promote sustainable local economic development.

(2)

Foster the growth of green industries by leveraging local resources and ecological advantages. A prime example is the successful development of the selenium-enriched food industry in Ankang City, which transformed its ecological constraints into a unique economic asset. Similar models can be replicated in other regions—for instance, promoting organic tea production in Hanzhong or eco-tourism in Shangluo—by integrating ecological branding, technological support, and market-driven strategies to create high-value, low-impact industries.

(3)

Strengthen regional coordinated development by establishing structured cross-regional cooperation mechanisms between the water source and receiving areas. For example, the water-receiving municipalities such as Beijing and Tianjin could partner with source cities like Shiyan and Nanyang to develop “green industrial parks” or “eco-compensation cooperation zones.” In these zones, receiving areas can provide capital, technical expertise, and market access for environmentally sound projects, such as clean energy production, eco-friendly agricultural processing, or water-conserving manufacturing, creating jobs and fiscal revenue while ensuring ecological sustainability.

(4)

Innovate ecological compensation mechanisms by moving beyond financial subsidies to include diversified instruments such as water rights trading, green equity investments, and performance-based fiscal incentives. For instance, compensation could be linked to measurable outcomes in water quality improvement or forest cover expansion. Additionally, mechanisms that allow downstream beneficiaries to directly invest in upstream green enterprises—such as Ankang’s selenium-based products or Nanyang’s eco-tourism initiatives—can align ecological goals with economic incentives and stimulate active participation of local governments and residents.

A comprehensive implementation of these policy measures can effectively alleviate the tension between environmental protection and economic development, ultimately achieving a mutually beneficial outcome.

5.4. Limitations and Future Research Directions

This study has several limitations that should be acknowledged. First, the assessment focuses solely on fiscal opportunity losses to local governments, excluding other significant economic impacts such as reductions in enterprise profits and household incomes. Consequently, the estimated losses likely represent a lower bound of the total socioeconomic costs incurred by the source areas, and compensation standards based solely on this fiscal perspective might underestimate the full societal burden. Second, the CGR-PCGDP method, while effective, may not fully isolate the impact of water protection policies from other external macroeconomic shocks or long-term structural shifts (e.g., national economic cycles, independent regional initiatives) that differentially affected the source and reference areas after the baseline year. The assumption that pre-2005 growth differentials would have continued linearly is a simplification of complex economic realities. Finally, to ensure data stability, the analysis concludes in 2019, avoiding the pandemic’s distortions. This means it does not capture the most recent economic adaptations or long-term trends. The evolution of the economic structure in these regions warrants updated analysis to see if the opportunity loss gap has persisted or changed in recent years.

Future research should therefore:

(1)

Develop a multi-dimensional assessment framework that integrates fiscal, enterprise, and household-level data to capture the full opportunity cost;

(2)

Employ more granular data or advanced econometric techniques to better control for confounding external factors;

(3)

Extend the timeline with updated data to analyze long-term trends and the effectiveness of adaptive strategies.

6. Conclusions

In order to quantitatively assess the development opportunity loss in the water source areas, this study put forward an analytical method, based on the comparison of cumulative growth rates of per capita GDP. The method improves previous traditional approaches by addressing the inadequacies of background differences and growth rate considerations. It is applied to conduct calculations for five municipalities—Shiyan, Nanyang, Shangluo, Ankang, and Hanzhong—in the water source area of the Middle Route of the South-to-North Water Diversion Project. The estimated fiscal opportunity losses are more scientifically accurate and reasonable, offering a novel perspective for evaluating the economic impacts of water source protection policies. This method could provide more scientifically grounded and feasible support for ecological compensation in water source areas.

The factors influencing development opportunity loss include geographical location, economic structure and transformation capacity. The development opportunity loss in various regions within the water source areas is closely linked to their geographical location. Regions closer to the Danjiangkou Reservoir, which face stricter water source protection policies, experience greater economic development opportunity losses. For example, Shiyan City and Nanyang City, as core areas for water source security, suffer annual average fiscal opportunity losses of CNY 569 million and CNY 371 million, respectively, from 2006 to 2019. In contrast, Shangluo City, Ankang City, and Hanzhong City, which are farther from the reservoir, incur lower losses. Adjusting economic structures and fostering green transformation are critical strategies for balancing water source protection with economic development, thereby mitigating the negative impacts of protection policies on local economies.

Based on the findings and discussion, suggestions for balancing ecological protection and economic development were proposed, including the enhancement of financial transfers and economic compensation, the development of green industries, the promotion of regional sustainable development, and the innovation of ecological compensation mechanisms. The method and findings in this article can be referenced by scholars and practitioners engaged in the field of environment and development.