How environmental regulation affects entrepreneurship: evidence from China’s low-carbon city pilot policy

Abstract

ABSTRACT As an important strategy for China to achieve green development, the low-carbon city pilot (LCC) policy has been studied mainly focusing on its positive impact on pollution control, while ignoring the potential economic effects, especially not focusing on the impact of the policy on entrepreneurship. For this reason, based on the registration data of new manufacturing enterprises at the city level of China from 2005 to 2019, we take the LCC policy as a quasi-natural experiment and adopt the time-varying difference-in-differences (DID) approach to systematically explore the impact of the LCC policy on urban entrepreneurship. The empirical results show that: (1) The LCC policy significantly crowds out manufacturing enterprises’ urban entrepreneurship, and this crowding-out effect gradually rises with the implementation time of the policy. (2) The crowding-out effect of the LCC policy on entrepreneurship is stronger for state-owned enterprises, heavily polluting enterprises, environmentally friendly cities, and low-market cities. (3) The mechanism analysis demonstrates that raising the economic growth target and lowering environmental constraints can alleviate the crowding-out effect of the LCC policy. Moreover, LCC policy has a spatial spillover effect that obviously crowds out manufacturing enterprises in neighbouring cities.