Exploration on Inter-Relation of Environmental Regulation, Economic Structure, and Economic Growth: Provincial Evidence from China

Abstract

The potential effect of implementing environmental regulations on economic growth has been a controversial issue for a long time. Environmental regulations may impact on economic growth by reconstructing the economic structure. With the intention of exploring the nature of this mechanism, it is important to understand the internal inter-relation of the three parties, requiring data from a large economy experiencing the transition in economic structure. This paper selects panel data for 30 provinces in China from 2008–2019, constructs a PVAR model, and empirically examines the dynamic relationship among environmental regulation, economic structure reconstruction, and economic growth. The results demonstrate that there is a two-way effect between environmental regulation and economic growth. In other words, environmental regulation has a “U” shape effect on economic growth, which first inhibits and then promotes economic growth, while economic growth has a strong and then weak promotion effect on environmental regulation. Economic growth has a short-term negative impact on economic structure reconstruction, whereas economic restructuring has a long-term beneficial impact on environmental regulation. Therefore, the government should reasonably set the intensity of regulation and optimize the path of economic restructuring to deal with the relationship between environmental regulation, economic structure reconstruction, and economic growth.