Flexible environmental policy, technological innovation and sustainable development of China’s industry: The moderating effect of environment regulatory enforcement

Abstract

Abstract How to rely on market mechanism for achieving industrial sustainable development is an important issue both to current scholars and policymakers. Technological innovation is regarded as a mediator to construct a driving mechanism that flexible environmental policy affects sustainable development from the “narrow” perspective of Porter’s hypothesis. Meanwhile, environment regulatory enforcement is introduced as a moderator to explore the institutional scenario that drives sustainable development of China’s industry. Then we have adopted industrial panel data of 30 provinces in 2006–2015 and employed the sys-GMM method for empirical test. The findings show that: (1) flexible environmental policy can significantly facilitate industrial sustainable development. (2) Flexible environmental policy has a significantly positive impact on technological innovation. Meanwhile, technological innovation is significantly and positively related to industrial sustainable development, and technological innovation partially mediates the relationship between flexible environmental policy and industrial sustainable development. (3) Environment regulatory enforcement positively moderates the relationship between flexible environmental policy and technological innovation. However, it has a potentially positive but not significant moderating impact on the relationship between technological innovation and industrial sustainable development, indicating that there is still an “implementation gap”. (4) From a regional point of view, technological innovation has partly mediating effects between flexible environmental policy and industrial sustainable development in the eastern and western regions, and environmental regulatory enforcement can positively moderate the role of flexible environmental policy in promoting technological innovation in the eastern region. Finally, this paper puts forward the policy implications.