Environmental Regulation, Pollution Treatment Productivity, and Industrial Environmental TFP in China

Liang Yongmei 1 and Dong Minjie 2

1 Institute of Industrial Economics, Chinese Academy of Social Sciences, Beijing, China
2 China Credit Rating Co., Ltd, Beijing

Abstract:   Amidst growing environmental protection intensity by the Chinese government, this paper investigates the effects of environmental regulation on China’s industrial pollution treatment productivity and environmental TFP. By estimating China’s pollution treatment productivity between 2001 and 2008 and analyzing environmental regulation intensity and the effects of the relevant factors and pollution treatment productivity using panel data, this paper discovers that (1) pollution treatment productivity contributed a significant share of about 40% to industrial environmental TFP during the investigation period; (2) environmental regulation may not necessarily cause adverse impacts on pollution treatment efficiency and productivity but demonstrates a U-shaped relationship: when the share of pollution treatment cost in industrial value-added is above the range of 3.8%-5.1%, environmental regulation is likely to promote pollution treatment productivity and thus environmental TFP. Judging by the estimation result, enhancing environmental protection and expediting the development of ecological civilization are conducive to China’s economic transition towards an intensive, efficient, circular, and sustainable development pattern. China’s current industrial development has the capacity to tolerate a rather demanding level of pollution treatment and management and China needs to further rely on energy conservation and the environmental production industries to promote the progress of pollution treatment technologies.

Keywords: environmental regulation, industrial environmental TFP, pollution treatment productivity, dynamic panel, the Generalized Method of Moments.


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