Regulation and environmental innovation: Effect and regional disparities in China

Abstract

Based on improved Griliches-Jaffe knowledge production function, this paper analyzes the effect of government regulation on environmental innovation by employing a panel dataset that covers 30 Chinese provinces from 1998 to 2006. We find that the regulation pressure (as measured by the investment in the treatment of industrial pollution) has significant and positive impact on environmental innovation (as measured by environmental patent applications) at the national level. We also find that there are distinct regional disparities between effects of environmental regulation on innovation. Only the regulation pressure in eastern China has positive and statistically significant impact on environmental innovation, while the regulation pressure in western and central China has insignificant effect on environmental innovation. More importantly, we show that the regional innovation conditions such as innovation input, export pressure, economic growth rate, and educational expenditure share are more important factors to affect environmental innovation than environmental regulation. © 2013 Springer Science+Business Media New York.