Can reducing carbon emissions improve economic performance? Evidence from China

Fei Yang, Beibei Shi, Ming Xu and Chen Feng ()

No 2019-13, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: As the problem of carbon emissions is becoming increasingly more serious around the world, how to balance carbon emissions reduction and economic growth has become an important issue in the field of ecological economics. China is the world's largest carbon dioxide emitter, and China's Low-Carbon Pilot (CLCP) policy has significantly reduced carbon dioxide emissions and achieved expected benefits. However, is environmental quality improving at the expense of economic growth? Based on panel data from 286 Chinese prefecture-level cities and from Chinese micro-industrial enterprises from 2001 to 2013, this article focuses on the causal effect of environmental policy on regional economic growth and the benefits and changes in the behavior of enterprises through a quasi-natural experiment and the difference-in-differences (DID) method. The results are as follows. First, the CLCP policy significantly promotes regional economic growth. Moreover, as the implementation time of the policy continues, environmental regulation has a greater effect of promoting economic growth. Second, although the CLCP policy significantly increases various production costs, it also promotes the growth of enterprises' output and benefits. Third, under the pressure of the significant increase in enterprise cost caused by environmental regulation, enterprises choose the positive way of strengthening internal management, improving efficiency and increasing innovation instead of choosing the negative way of trans-regional transfer to exit the market; accordingly, enterprises finally achieve an improvement in output and benefits.

Keywords: CLCP policy; economic growth; behavior of enterprise; DID (search for similar items in EconPapers)
JEL-codes: O12 O13 Q38 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cna, nep-ene, nep-env and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201913

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