Increasing marginal effect of environmental regulation dividend

SHI Beibei1 FENG Chen2 ZHANG Yan1 YANG Fei1

(1.School of Economics & Management, Northwest University 710127)
(2.Australia Business School of University of New South Wales)

【Abstract】There has been no consensus yet on whether environmental regulation brings economic dividend or hinders economic growth, that is, whether the regulatory effect should follow the “following the cost hypothesis” or the “productivity improvement hypothesis.” This paper examines the specific implementation of this mechanism by analyzing the impact of environmental regulation policy on the economic growth in China. Therefore, this paper firstly establishes a theoretical model to analyze how the regulatory policy affects the mode of regional economic growth. It selects the panel data of China’s prefectural-level cities from 1994 to 2010, uses the “two control zone” policy for a quasi-natural experiment, and adopts the DID method to assess the impact of environmental regulation on urban economic growth. The findings are as follows: Firstly, the environmental regulation has a significant promoting effect on the urban economic growth, and this role will be gradually enhanced with the implementation of the policy; secondly, the role of environmental regulation in promoting economic growth has a progressive increasing marginal effect, that is, the larger the city size is, the greater the role played by environmental regulation in promoting economic growth is. The results are still valid after a series of robustness tests. In addition, this paper discusses the micro-mechanism of environmental regulation to promote economic growth, and finds that environmental regulation does not significantly increase corporate production costs, but significantly enhances corporate productivity. Therefore, this mechanism provides a strong support for the win-win development mode of environmental regulation and economic growth. At the same time, this paper provides a new way of thinking for understanding the impact of environmental regulation on economic growth.

【Keywords】 environmental regulation; economic growth; two control zone; difference-in-differences method;

【DOI】

【Funds】 General Project of National Social Science Foundation of China (16BZZ086) Independent Innovation Funding Program for Graduate Students of Northwestern University (YZZ17011)

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(Translated by ZHANG Shuo)

    Footnote

    [1]. ① For the implementation time of the two-control zone policy and the list of cities for implementation, please refer to the website of the formerly Ministry of Environmental Protection of the People’s Republic of China: http://zfs.mep.gov.cn/fg/gwyw/199801/t19980112_81938.shtml. [^Back]

    [2]. ② In Plan for Delimiting Acid Rain Control Areas and Sulphur Dioxide Pollution Control Areas approved by the State Council of China, the two-control zone policy not only imposes restrictions on the total outputs of enterprises that exceed the pollution limit (such as restricting production of or shutting down the mines with the production of coal seams larger than 3%) and but also requires high-polluting enterprises to carry out technical rectification (such as requiring the development of desulphurization facilities and the improvement of clean technology capabilities) to meet the standards required by the document. Therefore, in the model, this paper names the former regulatory policy “productive environmental regulation” and the latter “technical environmental regulation.” At the same time, to prevent ambiguities and misunderstandings caused by the symbols, the symbols used in this paper are explained here: C1’’(R1, θ1) = 2C1(R1,θ1)/∂2R1, C1’(R1,θ1) = ∂C1(R1, θ1)/∂R1, C2’’(R2, θ2) = 2C2(R2, θ2)/2R2, and C2’(R2, θ2) = ∂C2(R2, θ2)/∂R2. [^Back]

    [3]. ① There are C1’(R1, θ1) > 0, C1’’(R1, θ1) > 0, ∂C1 (R1, θ1)/∂θ1 > 0, and 2C1(R1, θ1)/2θ1 > 0; C2’(R2, θ2)>0, C2’’(R2, θ2) > 0, ∂C2 (R2, θ22)/∂θ2 > 0, and 2C2 (R2, θ2)/2θ2 > 0. [^Back]

    [4]. org① Due to space limitation, the figure drawn is omitted here. Please refer to the open attachment at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [5]. ① According to the standards of Chen and Wu (2015), the strict DID method must satisfy the following assumptions: the homogeneity of the impact object, the randomness of the exogenous shock sequence, the uniqueness of the exogenous impact object; the uniqueness of the exogenous impact; the randomness of exogenous impact object. Before the standardized application of the DID method, the above five hypotheses must be satisfied to obtain a more accurate causal inference. [^Back]

    [6]. ① The satellite light data mainly come from the global nighttime lights data acquired by the scanning sensors (DMSP/OLS) carried by a US military weather satellite. This paper only extracts the nighttime light data of Chinese cities from 1994 to 2010 to measure the economic growth. The reason is that the reform of taxes and dues was implemented in 1994. If the samples before 1994 are examined, the final estimation results may be disturbed by the tax reform policy. The reason for the cut-off of 2010 is that the long-term goal of the two-control zone policy was set to be realized in 2010, and the government hopes to reach the second-phase emission reduction goal in 2010. Of course, due to the noise of the original DMSP/OLS data, there is a problem that the discontinuity of the original image data set and the light brightness will reach the saturation value. For the first reason, this paper adopts the image correction based on the method of invariant target region used in most of the literature (Cao et al., 2015). For the issue of the saturation value, it is found in reference of the literature that the developing countries rarely reach the saturation value of the light. The maximum saturation value is 63, and for the selected light intensity in this paper is only 57, so it can be believed that there is no light saturation. [^Back]

    [7]. ② The two-control zone policy aims to control the emissions and regulation of sulfur dioxide and coal is the energy source with the highest primary energy consumption in China. The proportion of sulfur emissions of the coal-fired power enterprises accounts for 68% of the sulfur emissions of all industrial enterprises. According to the reply by the State Council of China to the two-control zone policy, the two-control zone policy must focus on limiting the total sulfur emissions of the coal-fired power enterprises. The existing coal-fired power plants with sulfur content greater than 1% must take measures to reduce sulfur dioxide emissions before 2000. Newly-built and transformed coal-fired power plants with sulfur content greater than 1% must install desulphurization facilities. At the same time, the Tenth Five-Year Plan of China points out that by 2005, the total national sulfur emissions will be reduced by 20% compared with 2000. In addition, considering that the environmental regulation policy still has a certain time lag, the actual time for the implementation of the policy should be set to as 2000 which is two years after, although the time for the introduction of the two-control zone policy for environmental regulation was 1998. [^Back]

    [8]. ③ Due to space limitation, the descriptive statistical table of the variables selected in this paper is omitted here. For the detailed results, please refer to the open appendix at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [9]. ① Considering the limit of the number of samples, the radius value is set as 0.02. [^Back]

    [10]. ② Due to space limitation, please refer to the open appendix for the empirical results omitted here at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [11]. ③ Due to space limitation, the figure of the dynamic effect trend can be found in open appendix at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [12]. ④ Due to space limitation, the results of the control variables are omitted in Table 2. For details, please refer to the open appendix at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [13]. ① Due to space limitation, please refer to the open appendix for the detailed results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [14]. ① Due to space limitation, please refer to the open appendix for the detailed results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [15]. ② Due to space limitation, please refer to the open appendix for the detailed results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [16]. ③ This paper selects Guangzhou, Shenzhen, Zhuhai, Dongguan, Foshan, Huizhou, Qingyuan and other cities. [^Back]

    [17]. ① Due to space limitation, please refer to the open appendix for the detailed results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [18]. ② The reason for this treatment is that the intervention in the pilot cities depends on the local historical records of sulfur dioxide and acid rain. According to the meteorological studies, the emission concentration of sulfur dioxide in the air is related to the sunshine duration, and the sunshine duration is favorable to the dissolution of unit sulfur dioxide. At the same time, the wind speed in the cities is conducive to the accumulation of sulfur dioxide in the air; surely, the formation of acid rain is also related to the amount of rainfall, so the urban rainfall and average temperature are adopted for measurement. In view of this, this paper combines the two, and uses the interaction term of the average temperature and the average wind speed and the interaction term of the annual rainfall and the annual sunshine duration as the tool variables of the selection of the pilot cities in the two control zones. [^Back]

    [19]. ③ Due to space limitation, the results of control variables are omitted in Table 4. For details, please refer to the open appendix at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [20]. ① Due to space limitation, the discontinuity figure is omitted here. For details, please refer to the open appendix at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [21]. ② Due to space limitation, please refer to the open appendix for the RD results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [22]. ③ Due to space limitation, please refer to the open appendix for the results of the robustness test at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [23]. ① Due to space limitation, please refer to the open appendix for the detailed results at the website of China Industrial Economics (http://www.ciejournal.org). [^Back]

    [24]. ② This paper selects the corporate payroll costs, total liabilities, management expenses and the input of intermediate products to measure the change in corporate costs. The increase in these indicators means the increase in corporate costs. [^Back]

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 12, Pages 40-58

December 2017

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Article Outline

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Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Policy background and theoretical model
  • 4 Research design and the selection of data and indicators
  • 5 Empirical results and robustness test
  • 6 Further discussion: micro-mechanism for environmental regulation to promote economic growth
  • 7 Conclusion and policy suggestion
  • Footnote

    References