Exploring the affecting mechanism between environmental regulation and economic efficiency: New evidence from China's coastal areas

Abstract

China's commitment to building the country into a maritime power has seen a rapid growth in its marine economy in recent years. In the meantime, increasing concern over environmental degradation and sustainability has made the government to shift attention from marine development to marine ecosystem protection by formulating more environmental policies. There has been a long-standing debate between traditional views and well-known Porter Hypothesis (PH) over the impact of environmental regulation on the competitiveness and efficiencies of firms and industries. Aiming to obtain empirical evidence of the possible impact, this paper uses the Super-Efficiency Slacks-Based Measure (SE-SBM) model to calculate economic efficiency considering undesired outputs and the system Generalized Moment Method (GMM) to examine the relationship between the two variables, using data from 11 provinces and cities in China's coastal areas. The results seem to support the presence of the PH in Chinese marine economy and show a U-shaped relationship between environmental regulation and economic efficiency. In addition, it is also found optimization of industrial structure can impose a positive effect on economic efficiency, while capital investment and science and technological innovations may have a negative effect. Based on these results, the paper puts forward some recommendations for policy makers.