How does environmental regulation affect industrial structure upgrading? Evidence from prefecture-level cities in China

This study examines whether and how environmental regulation affects industrial structure upgrading with a panel data of 270 cities between 2006 and 2019. We first adopt two indicators-rationalization and advance-ment-to quantify industrial structure upgrading and then use kernel density estimation as well as trend surface analysis to investigate these indicators' spatial-temporal pattern. With a spatial Durbin model, we find that environmental regulation has inverted U-shaped and U-shaped direct impacts on rationalization and advance-ment, and inverted U-shaped indirect impacts on both rationalization and advancement in neighboring regions. Moreover, our subsample tests demonstrate that environmental regulation has various impacts on industrial structure upgrading in different regions. Last, a mediating effect analysis shows that technological innovation is an important path for environmental regulation to promote advancement. Our study provides new evidence for the Porter hypothesis, and offers suggestions for the authorities to formulate and optimize environmental regulation intensity.