A Blessing or a Curse? Exploring the Impact of Environmental Regulation on China’s Regional Green Development from the Perspective of Governance Transformation

Abstract

China’s rapid economic growth has caused serious problems, such as environmental pollution and resource exhaustion. Only by improving the green total factor productivity (GTFP) can China’s economic development get out of the dual dilemmas of environmental degradation and resources exhaustion. Although environmental regulation helps to improve China’s productivity, its impact on GTFP is still controversial and deserves careful investigation. In this context, this study adopts the global Malmquist-Luenberger productivity index to measure the GTFP change of China’s 30 provinces over the period of 2003 to 2017 and then it uses the fixed-effect dynamic panel model to investigate the impact of environmental regulation on GTFP from the perspective of governance transformation. The results show that: (1) there is a nonlinear U-shaped relationship between environmental regulation and GTFP, indicating that the Porter hypothesis is verified in China. More notably, the values of environmental regulation are still located on the left side of the U-shaped curve at present, which means that the promotional effect of environmental regulation on GTFP has not been realized fully. (2) The U-shaped relationship shows significant regional heterogeneity. The western region demonstrates the highest level of significance, followed by the eastern region. However, the U-shaped relationship is insignificant in the central region. (3) Governance transformation can not only significantly improve GTFP but it can also accelerate the realization of the Porter hypothesis by inspiring the innovative enthusiasm of enterprises, which means that governance transformation can contribute to the achievement of the improved effects of environmental regulation on GTFP. (4) R&D investment can significantly improve GTFP, where the impacts of trade openness and factor endowment were significantly negative and the influence of foreign direct investment was not significant. These conclusions provide a good reference point for optimizing the relationship between the government and the market, as well as promoting regional green and high-quality development in China.