Does Environmental Regulation Shape Entrepreneurship?

Dongmin Kong () and Ni Qin ()
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Dongmin Kong: Huazhong University of Science and Technology
Ni Qin: Huazhong University of Science and Technology

Environmental & Resource Economics, 2021, vol. 80, issue 1, No 6, 169-196

Abstract: Abstract This study investigates the causal effect of environmental regulation on entrepreneurship. By using China’s Two Control Zones policy in 1998 as an exogenous shock and a novel dataset about firm creation, our difference-in-differences-in-differences estimation shows that environmental regulation significantly deters entrepreneurship in pollution-intensive industries. Our results are robust to a series of endogeneity and robustness tests. A plausible mechanism is that the stringent regulation increases firm’s production costs, thus reducing expected profits and crowding out entrepreneurship. Moreover, we find that environmental regulation has a sizable and statistically significant effect only on entrepreneurship in areas with low corruption, high institutional quality, as entrepreneurs can hardly evade regulations through rent-seeking activities or other means.

Keywords: Environmental regulation; Entrepreneurship; China; Natural experiment (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (30)

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DOI: 10.1007/s10640-021-00584-8

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