The Dual Effect Of Environmental Regulation On Technological Innovation

Environmental pollution has become serious threats to human survival. With the development of economy and process of industrialization and urbanization, Chinese ecological environment has been damaged seriously. Strengthening environmental protection is an inevitable choice to change the mode of Chinese economic development. Since technological innovation is the determinants for the win-win goal of environmental protection and economic development, the effect of environmental regulation has on technological innovation has always been a hot issue.This paper argues that environmental regulation not only has a direct impact on enterprises’technological innovation; but also has an indirect impact through affecting FDI, firm size, human capital levels and other factors. Meanwhile, environmental regulation and technological innovation are long-term, ongoing process. It’s better to reflect the relationship of them form dynamic perspective. Therefore, two-step GMM empirical method has been used on the panel data of28manufacturing industries in Jiangsu Province for years2004-2011to analyze the direct and indirect effect environmental regulation has on technological innovation. The results show that:(1)there is a U-Shaped dynamic relationship between environmental regulation and enterprise technology innovation. That is to say,"offset effect" will gradually transformed into "compensation effect" as the strength of environmental regulation become stronger. In descent phase, the increased cost of pollution control crowd out R&D investment, thereby weakening the company’s technological innovation capability; while in rising phase, companies will improve the level of pollution control and production technology in respond to stringent environmental regulation, thereby improving company’s technological innovation.(2)Environmental regulation has an indirect impact on enterprises’technological innovation mainly through affecting FDI and firm size. The effects FDI and firm size have on technological innovation will be affected by local environmental regulation policy. The introduction of foreign capital will promote the local technological level by technology spillover effect without the constraints of environmental regulation. Because of funding and scale advantages, larger companies are more conducive to enterprise technological innovation. However, FDI and firm size will inhibit technological innovation with the constraints of environmental regulation. (3)Both profit margins and corporate wage levels will have a positive effect on enterprise innovation regardless of the constraints of environmental regulation. Meanwhile, R&D investment also has a certain inertia. That is to say, the R&D investment a period lagged will be affected by the early one.In order to achieve the goal of win-win situation of environmental protection and technological innovation, government should formulate appropriate and differentiated environmental to encourage enterprises to strengthen R&D of pollution control technology;increase the support for R&D funds to stimulate the offset effect of environmental regulation; formulate appropriate investment policy to improve FDI spillover effect and technological capabilities of domestic enterprise; accelerate the accumulation of human capital to improve the capabilities of technological innovation and digestion and absorption of advanced technology.