Environmental regulation, green technology innovation, and industrial structure upgrading: The road to the green transformation of Chinese cities

Abstract

Environmental regulation can facilitate the economy's green transformation through two channels: green technology innovation and industrial structure upgrading. However, the roles of economic development levels play on the effects of environmental regulation are usually ignored. In view of this, we estimate the heterogeneous impacts of environmental regulation on green technology innovation and industrial structure in 105 Chinese environmental monitoring cities through the partially linear functional-coefficient panel models. The new methodological framework can allow the variable, environmental regulation, to enter the model with coefficients being functions of economic development levels. Our results show that when the economic development levels are low, environmental regulation will restrain the development of green technology innovation but have insignificant impacts on the upgrading of industrial structure. With the growth of economic development levels, environmental regulation will show relatively weak impacts on green technology innovation and industrial structure. And when the economic development levels tend to be high, environmental regulation will significantly promote green technology innovation and industrial structure upgrading. Furthermore, we identify the mixed impacts of environmental regulation in different Chinese cities and put forward relevant policy recommendations for green transformation in China.