Abstract
A vast theoretical and empirical literature has been devoted to exploring the relationship between environmental regulation and total factor productivity (TFP), but no consensus has been reached and the reason may be attributed to the fact that the resource reallocation effect of environmental regulation is ignored. In this paper, we introduce resource misallocation in the process of discussing the impact of environmental regulation on TFP, taking China’s provincial industrial panel data from 1997 to 2017 as a sample, and the spatial econometric method is employed to investigate whether environmental regulation has a resource reallocation effect and affects TFP. The results indicate that there is a U-shaped relationship between environmental regulation and industrial TFP and a negative spatial spillover effect of environmental regulation on industrial TFP at the provincial level in China. Both capital misallocation and labor misallocation will lead to the loss of industrial TFP. Capital misallocation has a negative spatial spillover effect on industrial TFP, while labor misallocation is just the opposite. Environmental regulation can produce a positive resource reallocation effect, which in turn promotes the industrial TFP in the range of 28% to 33%, while capital misallocation and labor misallocation are only partial mediator.
Highlights
Total factor productivity (TFP) is an important indicator to measure the quality of economic development
Since the main purpose of this paper is to investigate the effect of environmental regulation and resource misallocation on industrial TFP level rather than on its growth rate, the Malmquist index is converted into the cumulative TFP index following
In order to check whether hypothesis 1 is valid, Equation (1) is employed to estimate the impact of environmental regulation on industrial TFP at the provincial level in China
Summary
Total factor productivity (TFP) is an important indicator to measure the quality of economic development. The development history of the world’s major developed countries shows that TFP has become increasingly important to the sustainable economic growth with the succession of development stages. Industry plays a pivotal role in the national economy. Improving the quality of industrial development is crucial to China’s overall economic development in the future. Since it is difficult to achieve major breakthroughs in technological innovation in short term, it is important to seek TFP improvement through resource reallocation. Due to the inadequate development of market economy, different degree of market distortions and resource misallocation can be widely observed in the industrial field of China’s economy, which hinders
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