How does Environmental Regulation Effect Green Growth? An Empirical Investigation from China

Based on panel data from 30 Chinese provincial administrations during 2001-2016, this study uses the Global Malmquist-Luenberger (GML) index to measure provincial green productivity and employs a spatial econometric model to examine the impact of environmental regulation on green productivity. The results indicate that China's overall green productivity has increased in trend during the research period, but there are significant regional differences, with those in the east showing greater increase than those in the mid-west. Beyond that, green productivity has significant spatial correlation in most years of the study period. Considering spatial effects, we find that there is a threshold for the impact of environmental regulation on green productivity. As regulation intensity crosses the inflection point, its effect on green productivity will change from negative to positive. Furthermore, environmental regulations may indirectly improve green productivity through technological innovation and foreign direct investment (FDI), but the effect depends upon the kind of environmental regulation imposed. Empirical results indicate that expenditure-type environmental regulation might improve green productivity by enhancing the positive effect of FDI, while investment-type environmental regulation might raise green productivity by promoting technological innovation. The results have important guiding significance for future environmental policy making.