Innovation Offset Effect Research Articles

Can climate policy promote high-quality development of enterprises? Evidence from China

Climate policy is of great importance for China’s climate goals of achieving peak carbon emissions by 2030 and carbon neutrality by 2060. However, whether the climate policy can consider economic performance and achieve high-quality economic development remains to be tested. Based on the perspective of high-quality economic development, this study takes three batches of low-carbon city pilots in China as a quasi-natural experiment and uses time-varying difference-in-differences to examine the impact of climate policy on high-quality development of enterprises. The findings show that the current climate policy in general does not promote the high-quality development of enterprises, when comprehensively considering the gradually strengthening regulation intensity of pilot policy in batches. The result holds after a battery of robustness tests. Further analysis shows that the economic mechanism behind it lies in that the environmental regulation arising from the climate policy only triggers the “compliance costs effect” instead of the “innovation offset effect.” It also finds that the inhibition effect of climate policy on high-quality development is more pronounced for non-state-owned enterprises, small-scale enterprises, and the sample with strong local environmental law enforcement. The findings of this study would complement existing theoretical research via evaluating the effectiveness of China’s current low-carbon policy at the micro level and provide policy implications for the implementation of future climate policies so as to mitigate climate change and achieve high-quality economic development. In addition, our estimation strategy can serve as a scientific reference for similar studies in other developing countries.

Environmental regulation benefits for whom? Heterogeneous effects of the intensity of the environmental regulation on employment in China

As environmental pollution in China has deteriorated in the recent years, intensifying environmental regulation has become a necessity for the Chinese government. But the debate persists among the academic circles and the government over whether a double dividend, reducing pollution emission and boosting employment, of environmental regulations exists. This study differentiates, based on Cobb-Douglas production function, the variance between high- and low-skilled labour and constructs theoretical models to analyse heterogeneous effects of environmental regulation intensity on the employment of labour with varied skills. The model finds that implementing environmental regulation will generate ‘compliance cost effect’ and ‘innovation offset effect’. The compliance cost effect will promote the employment of high-skilled labour while suppressing that of the low-skilled labour. The innovation offset effect, however, will facilitate the employment for both high-skilled and low-skilled labour. Therefore, the employment of high-skilled labour will grow along with the intensification of environmental regulation while that of the low-skilled labour will decline first and then rebound, showcasing a U-shaped curve. The empirical research results based on the provincial dynamic panel data from 2004 to 2018 in China confirm the theoretical analysis. Moreover, we find spatial spillover effects of environmental regulation on employment, with high-skilled labour being more sensitive to changes in environmental regulation. One percentage point increase in environmental regulation in neighbouring regions will cause 0.072% employment decline in high-skilled labour while that of low-skilled labour will only decrease 0.033%. The conclusions of this study verify that dividend in employment growth for both high-skilled and low-skilled labour can be realised along with intensification of environmental regulation, which carries significant guiding implications for policy-making for environmental regulation in China.

Does Environmental Regulation Affect Export Quality? Theory and Evidence from China.

Most studies focus on the empirical investigation of the relationship between environment and trade, but they lack a systematic theoretical framework. To fill this gap, this study constructs an analytical framework of export competitiveness from the perspective of product quality, and reveals the theoretical mechanism of environmental regulation affecting export quality. We empirically examine the impact of environmental regulation on the export quality of China’s manufacturing industry, as well as its possible mechanism. Our findings show that environmental regulation can significantly promote the export quality upgrading of the manufacturing industry and that process and product productivity are two possible channels through which such regulation affects export quality, although their mediating effects are in opposite directions. The mediating effect of product productivity is greater than that of process productivity, indicating that environmental regulation mainly has an innovation offset effect on China’s manufacturing industry. For pollution-intensive industries, environmental regulation plays a significant promoting role through the channel of product productivity, but, for clean industries, environmental regulation has an inhibitory effect through the channel of process productivity. These findings provide important enlightenment for the coordinated development of China’s ecological civilization and trade power.

Environmental Regulation, Technological Innovation, and Export Competitiveness: An Empirical Study Based on China’s Manufacturing Industry

A current and universal challenge, particularly in developing nations, is the establishment of effective environmental regulation policies that protect the ecological environment without adversely affecting the international competitiveness of the domestic manufacturing industry. To deal with this dilemma, this study investigates the export competitiveness of China’s manufacturing industry from the viewpoint of export value added. The Porter hypothesis is applied for an empirical investigation of the effect of environmental regulation on export competitiveness and to determine the presence of intra-industry heterogeneity. Furthermore, this study seeks to understand the mechanisms through which environmental regulation affects export competitiveness by exploring the two main approaches to technological innovation. The findings reveal that environmental regulation has a promotion effect of approximately 2% on the export competitiveness of China’s manufacturing industry; however, this effect is non-linear and displays a “U-shaped” tendency, indicating that certain prerequisites must be fulfilled to validate the Porter hypothesis. In addition, the effect of environmental regulation displays significant intra-industry heterogeneity, which is evident primarily in heavily polluting sub-industries and to a lesser extent in moderately polluting sub-industries but insignificant in lightly polluting sub-industries. Environmental regulation also differs significantly in the mechanisms through which it affects different approaches to technological innovation. Independent research and development is affected by environmental regulation through the compliance cost effect, which limits export competitiveness, while technology introduction is affected by the innovation offset effect, which favors export competitiveness. These findings offer political implications for the sustainable development of the ecological environment and foreign trade.

Environmental regulation and industrial capacity utilization: An empirical study of China

China’s current economic development is faced with the two major problems of environmental pollution and production overcapacity. Environmental regulation is not only an effective means of controlling polluting emissions but is also an important factor which can affect industrial capacity utilization (ICU). For this work, 2004 to 2015 panel data from 30 provinces in China was employed to verify the evolution and spatial correlation of both environmental regulation intensity and industrial capacity utilization. The dynamic spatial panel model (DSPM) was then used to examine not only the impact of environmental regulation intensity on industrial capacity utilization but also the compliance cost effect and the innovation offset effect through which the environmental regulation intensity influences industrial capacity utilization. It was found that striking differences exist between provinces with respect to China’s environmental regulation intensities and industrial capacity utilization, with a fluctuating but rising trend emerging over time. In parallel with this, there is also a significant spatial correlation in industrial capacity utilization. The results from the DSPM show that increases in environmental regulation intensity can significantly improve industrial capacity utilization. Environmental regulations can also improve industrial capacity utilization through the innovation offset effect, although the compliance cost effect of environmental regulation not significant.