Opportunity Cost of Environmental Regulation in China’s Industrial Sector

Ye Wang, Yunguo Lu and Lin Zhang
Additional contact information
Ye Wang: School of Russian Studies, Dalian University of Foreign Languages, Dalian 116044, China
Yunguo Lu: School of Energy and Environment, City University of Hong Kong, Hong Kong, China

IJERPH, 2021, vol. 18, issue 16, 1-19

Abstract: In this paper, we employ a directional distance function to estimate the opportunity cost arising from environmental regulations in China’s industrial sector. The change of opportunity cost is decomposed mathematically into two components including technical change and input change. Our results show that the opportunity cost attributed to environmental regulation is nil in some regions. The change of opportunity cost is marginal at the national level, as the positive effect of technical change is canceled out by the negative impact of input change on opportunity cost. Built on our mathematical decomposition, we further estimate the effects of environmental regulations on opportunity cost using a mediation model. It shows that environmental regulation has a significantly positive direct effect and a significantly negative indirect effect through foreign direct investment on opportunity cost. Our findings suggest, firstly, that inward FDI in China’s industrial sector represents relatively dirty production technology; and, secondly, industrial production has transited towards a less carbon-intensive input mix. This paper, therefore, provides new insights for the recent dynamics of carbon abatement performance of China’s industrial sector with policy implications.

Keywords: environmental regulation; opportunity cost; technical change; input change; mediation effect (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1660-4601/18/16/8579/pdf (application/pdf)
https://www.mdpi.com/1660-4601/18/16/8579/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jijerp:v:18:y:2021:i:16:p:8579-:d:614195

Access Statistics for this article

IJERPH is currently edited by Ms. Jenna Liu

More articles in IJERPH from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().