The Effects Of Environmental Regulation On Technical Innovation

Neoclassical Economics argues that reinforcing environmental regulation will increase the compliance cost of the firms and squeeze out the effective investment on the other fields,which reduces their productivity and competitiveness,consequently inducing a negative impact on economic development.However,"Porter Hypothesis"brings up a new idea that strict and well-designed environmental regulation can strike an incentive on the firms for more innovation activity,which can in return offset part of even the whole cost of compliance.And finally,firms may increase their productivity and competitiveness,which boosts economic development in the long run.So,is there a win-win chance for environmental protection and economic development in China?This paper uses the panel data of 34 industries in China during 2011-2016,using sys-GMM and threshold regression methods to test the non-linear relation between environmental regulation and technical innovation,and finds the following conclusions.First of all,the relation between environmental regulation and technical innovation is significant non-linear,presenting as the U-shaped curve.when the intensity of environmental regulation is weak,it inhibits technical innovation of firms,but while it gets increasingly-intensified and crosses the turning point of the curve,the incentive effect takes over the crowding-out effect and environmental regulation motivates the technical innovation.Second,firm scale,nationalization,relative concentration and export intensity has the significant positive influence on technical innovation while FDI has the negative one.Third,when PPI is added into the model,the significance of the effect of environmental regulation on technical innovation does not change,so findings of this paper is effective.Forth,the results of the threshold regression turn out to be similar as above,thus the findings of this paper is robust.No evidence for the existence of the second turning point or threshold value.The findings of this paper require the government to carefully apply various types of environmental regulation tools for different industries and take good advantage of state-owned enterprise.