Agglomeration externalities and the non‐linear performance of environmental regulation: Evidence from China

Rui Pang, Dan Zheng and Minjun Shi

Growth and Change, 2021, vol. 52, issue 3, 1701-1731

Abstract: The pollution abatement effect of environmental regulation changes periodically in terms of local economic agglomeration levels, because of agglomeration externalities could influence firms' regulatory response by changing the compliance cost. Based on a panel dataset of 30 provinces in China from 1999 to 2017, this paper engages in threshold model and mediation analysis to examine the thresholds of economic agglomeration for environmental regulation to take effect and the influencing paths of environmental regulation at different agglomeration levels. The economic agglomeration degree is measured by the economic density of the built‐up area. The threshold test recognizes two thresholds of economic density, which are 0.3 CNY billion/km2 and 1.7 CNY/km2. Only when economic density exceeds the thresholds, can environmental regulation significantly reduce industrial emission intensity and emission density, respectively. At the first threshold, environmental regulation takes effect mainly through improving local industrial structure; at the second threshold, environmental regulation takes effect mainly through downsizing the scale of polluting industries. The policy enlightenment provided by this article is to formulate differentiated environmental governance strategies according to local conditions and the characteristics of the development stage of each region.

Date: 2021
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