Environmental Regulation And Technical Progress

According to the data from environmental protection department,70%of China’senvironmental pollution is caused by firms. Thus, in such a background, the function oftraditional economic form based on the advantages of resources the traditionaleconomic form in the industrial development will be gradually weakened, and pollutingactivities that caused by producing will also bound to be restricted. These "bad" factorswill bring a realistic and urgent problem to the economy of our nation: how to correctlydeal with the relationship between resources, environment and economic development,and achieve the "win-win" situation between environment and the competitiveness ofenterprises.Therefore, it is not only necessary, but also very urgent to study the relationshipbetween Chinese environmental protection and industry technical progress and toexplore the path to balance the "economic growth" and "environmental protection". Onthe basis of combing the previous literature, this paper puts forward the shortcomings ofthem. And for the relationship between environmental and technical progress, this paperconsidered the industry difference of effect caused by environmental regulation, madean in-depth and specific research.This paper introduces the developing stage and method about Chineseenvironmental regulation in detail, I use the method of Dea–Malmquist to measure thetechnical progress, and make an in-depth analysis of the current changes in the technicalprogress. Through the analysis we found that with the implementation of the varioustypes of environmental regulation policy, industrial pollution situation of our nation isgradually turning better. During2003and2011technical progress rate also showed atrend of steadily rising, although it went down for a while after the2007financial crisis,it rebounded since the financial crisis is over.According to the theoretical analysis of this paper, the effect that environmentalregulation made on technical progress may turn out in two sides, on the one hand,companies will invest on pollution abatement in order to obey the environmentalregulations, thus R&D spending may be diverted, and technical innovation will behampered in some extent. On the other hand, environmental regulation will increase thecost of production by charging for environmental resources that are used for production,the change of factor price and the increase of cost will be the direct driving force oftechnical innovation, for only through innovation companies are able to reduce the cost of production, and guarantee the profit keeping increasing. When faced withenvironmental regulation, technical innovations of the companies are resulted in twoways: one is the environmental technology for pollution abatement; the other one is thetechnical progress for the purpose of production. Sometimes there is a trade-off problembetween them, but also they can result in a mutual promotion. According to the existingresearch, this paper supports the Porter hypothesis, and furthermore puts forward theindustry difference hypothesis based on environmental regulation, and makes empiricaltest.Based on the2003-2011China’s35-industry-data, using fixed effect panel datamodel, this paper made an empirical analysis on the effect that Chinese governmentenvironmental regulation made on the technical progress, and made a consistent andstable conclusion, that the Chinese government’s environment significantly promote thetechnological progress of enterprises. If environmental regulation intensity increases for1%, technical progress level will rise0.0822%, and the influence of environmentalregulation on technical progress is lagged. The result supports the Porter hypothesis, butcompanies of different industries react differently to environmental regulations.Concretely, in order to examine the effect that industrial difference made on thetechnological progress effect of environmental regulation, this paper sets the cross termsof government environmental regulation intensity with industry characteristics, wecould find that:(1) Compared with the smaller scale of enterprises, enterprises withlarger scale are easier to carry out technical innovation activities, thus lead to theprogress of technology, for they have the advantages of capital, management and so on.(2)Industries with lower pollution intensity are faced with a relatively suitable intensityof current environmental regulation, so that they tend to make a long term plan andconduct more innovation, while enterprises with high pollution intensity have a weakincentive of innovation because of the lax regulation forces.(3) In the industries withhigher technical level, the enterprises’ research and development cost is relatively lower,which is good for the environmental regulation’s effect on technological progress.(4)Because the state-owned enterprise’s absolute advantage on funding government R&D,its effect of technology progress is more obvious compared with non-state enterpriseswhen faced with environmental control.In conclusion, although the environmental regulation leads to the increase ofproduction cost, the empirical results show that environmental regulation has obviouspromoting effect to technological progress. So a proper increase of the strength of environmental regulation will promote enterprise technology progress. But the extent ofelevated environmental regulation strength must be controlled. The result of this studyshows that, although environmental regulation, overall, has a positive effect on theimprovement of the technological progress. But since different industries have theirdifferent characteristics, so that t the effect of environmental regulation on technicalprogress is different. Therefore, the policymakers should make analysis based onspecific industries, and make reasonable environmental regulation policy, as well as theindustrial policy, and make the sustainable growth of industrial technology in Chinapossible.