How does environmental regulation affect the city's domestic value-added rate of export? New spatial evidence from Chinese cities

Protecting the environment and increasing the domestic value-added rate of exports (DVARE) are hot issues for high-quality economic development. This paper explores how environmental regulation affects the DVARE. This paper constructs a dynamic spatial econometric model using the data of 285 Chinese cities from 2000 to 2020. It empirically tests the impact of environmental regulation on the DVARE. The research results show that environmental regulation has a nonlinear impact on the DVARE. Environmental regulation has a U-shaped effect on DVARE that first decreases and then increases. Furthermore, environmental regulation also has a positive spatial spillover effect. The heterogeneity analysis also shows that cities have different administrative levels, geographical locations, size, and environmental regulations' impact and spillover effects on the DVARE are also different. This paper also finds that the spatial spillover effect of environmental regulation is limited to 1100 KM by constructing a spatial attenuation matrix. This result is still robust after selecting appropriate instrumental variables, replacing DVARE, environmental regulation intensity measure and spatial weight matrix. The final mechanism test found that environmental regulation has promoted the increase of the DVARE through cost effects and resource allocation effects. However, the innovation effect mechanism is insignificant.

Automated summary

This paper examines the impact of environmental regulation on the domestic value-added rate of exports in China. By constructing a dynamic spatial econometric model and using data from 285 cities between 2000 and 2020, the research findings show that environmental regulation has a nonlinear U-shaped effect on the domestic value-added rate of exports, with a positive spatial spillover effect. The study also reveals heterogeneity in the impact and spillover effects of environmental regulation on the domestic value-added rate of exports, depending on cities' administrative levels, geographical locations, and sizes.