Purpose/SignificanceVarious kinds of Industrial Agglomeration districts all over China have been built at breakneck speed for the past many years, accompanied by serious environmental pollution problems which have been paid more and more attention from all walks of life. This paper is focused on the relationship between industrial agglomeration and environmental pollution.

Method/Process The study explores the relationship by impulse response function and variance decomposition using two-digit industry-level panel data for the China's Industrial sector based on a Panel Data Vector Auto-regression model.

Result/Conclusion The empirical results show that the improvement of industrial agglomeration degree may have threshold effects on environmental quality, but industrial agglomeration can only account for 2.5% of industrial pollution. The study also finds that the pollution has an effect of industrial agglomeration in China probably caused by the regulation on industrial waste gas, and environmental pollution can explain more of the variation in the industrial agglomeration as compared to the effect of industrial agglomeration on environmental pollution in the long run.