How does Environmental Regulation Promote Technological Innovation and Green Development? New Evidence from China

Based on 35 industries during 2005-2015, this paper first uses a slack-based measure data envelopment analysis (SBM-DEA) model and the Luenberger index to measure green total factor productivity (GTFP) for each industry. Then we used a panel threshold model to study the impact mechanisms of environmental regulation on technological innovation and GTFP. Considering industry heterogeneity, the paper further explores whether such mechanisms differ in industries. The main findings are: (1) The impact mechanisms of environmental regulation on technological innovation and GTFP are different. For technological innovation, the effect depends on whether environmental regulation brings enough innovation pressure to firms by the rising cost of compliance. However, in terms of GTFP, the effect depends on the net effect between positive effects and negative effects of environmental regulation. (2) Apart from innovation offset, we also found that environmental regulation can promote GTFP through increasing market concentration and building green market entry barriers in high-pollution emission industries. (3) Such a competitive advantage is only effective in the short term, while technological innovation shows a positive offset effect in the long run.