Can China’s Environmental Regulations Effectively Reduce Pollution Emissions?

Abstract

Based on the provincial panel data of China during 2006–2017, this study uses the panel smooth transition (PSTR) model to study the dynamic transformation mechanism of pollution emission under environmental regulation. We focus on technological progress, economic growth, and foreign direct investment (FDI) as threshold variables, and analyses the non-linear effects of environmental regulation on pollution emissions under those threshold variables, attempting to explore the effectiveness of existing environmental regulations. The structure of biased technological progress is based on the slacks-based measure (SBM) and Global-Malmquist–Luenberger index, which is divided into pollution-biased technology progress and clean-biased technology progress. Finally, we use the panel vector auto regressive (PVAR) algorithm to further verify the relationship. The findings are as follows: (1) Environmental regulation has a significant nonlinear effect on pollution emissions, and technological progress is the optimal threshold variable of this study. (2) Under the influence of these three factors, environmental regulation has a substitution effect on pollution discharge, and a stronger substitution effect on emission reduction in areas with advanced technology and high FDI. It also has a lower emission reduction effect in the high-system areas of economic development than in the low-system areas. (3) The PVAR results show that the impact on environmental regulation of technological progress and FDI has gradually turned from positive to negative; the impact of economic growth on environmental regulation has always been positive but is gradually decreasing. This study points out the direction for governments and companies to implement effective environmental regulations.