Environmental Regulations and Urban Technological Innovation: China’s Two Control Zones Policy as Evidence

Abstract

In China, the Two Control Zones (TCZ) policy is an important practice in promoting sustainable development. This study aimed to investigate whether the TCZ policy promotes urban technological innovation. In this research, a DID model was built with the TCZ policy as an exogenous shock using panel data covering over 223 Chinese cities from 1995 to 2003. The empirical outcomes indicate that the TCZ policy is beneficial for augmenting urban technological innovation. Through heterogeneity analysis, it is further observed that the promotional effects of technological innovation resulting from the TCZ policy are highest in the Western region, followed by the Eastern region, and finally the Central region, and higher in cities with a higher proportion of state-owned enterprises than in cities with a higher proportion of non-state-owned enterprises. The findings of this paper align with Porter’s hypothesis and hold significant importance for other countries in devising appropriate environmental regulation policies to facilitate sustainable development.