Can Environmental Regulations Promote Regional Industrial Transfer?

In the context of building a Beautiful China, it is imperative to strengthen environmental regulations to restrict industrial pollution emissions. However, there are significant differences of regulations intensity among different regions, which will lead to an increase in the cost of compliance with regulations for polluting industries, so these industries tend to transfer from areas with strong environmental regulations to areas with weak environmental regulations. Based on the panel data of 282 prefecture-level cities and national patent data from 1994 to 2010, this paper constructs a difference in difference model (DID) to empirically study the impact of environmental regulations on regional industrial transfer and its mechanism. We find that, firstly, the Two-Control Zones policy has significantly promoted regional industrial transfer, and its effect has gradually increased in the long run. Then, the promotion effect of the Two-Control Zones policy on regional industrial transfer is heterogeneous among different regions due to the regional market environment and resource endowment; that is, the promotion effect is the greatest in Central China, then in Eastern China, and finally in Western China. At the same time, the frequency of industrial transfer in areas with high resource dependence is significantly lower than that in areas with low resource dependence. Finally, mechanism studies find that environmental regulation enhances inter-regional industrial liquidity and promotes regional technological innovation, and the role of environmental regulation on technological innovation is more obvious in regions with weak industrial liquidity. This proves that the Pollution Heaven Hypothesis and the Porter Hypothesis can be established at the same time in the Chinese context, which provides more reliable empirical evidence for the government to formulate environmental regulations, restrict pollution emissions, and balance environmental governance and sustainable economic development.

Automated summary

In order to build a Beautiful China, it is necessary to strengthen environmental regulations to control industrial pollution emissions. This study examines the impact of environmental regulations on regional industrial transfer in China and finds that the Two-Control Zones policy has significantly promoted regional industrial transfer. The effect of this policy varies across different regions, with the greatest impact in Central China, followed by Eastern China, and the least in Western China. Mechanism studies also show that environmental regulation enhances inter-regional industrial liquidity and promotes regional technological innovation.