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How Do Environmental Regulations Affect Industrial Dynamics in China?

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Evolutionary Economic Geography in China

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Abstract

One of the key challenges facing pollution-intensive firms is how to respond to environmental regulations (Tole and Koop 2008; List et al. 2003; Jeppesen et al. 2002; Yang and He 2015). The existing literatures on environmental regulations and industrial dynamics pay attention to firm behaviors, firm competitiveness, and their relationship with environmental regulations, based on either the pollution haven hypothesis (PHH) or the Porter hypothesis (PH) (Kearsley and Riddel 2010; Bommer 1999; Ambec et al. 2013). PHH suggests that uneven environmental regulations between countries/regions cause the relocation of pollution-intensive production to countries/regions where regulations are less strict (Birdsall and Wheeler 1993; Copeland and Taylor 2004; Tobey 1989). It is argued that high environmental standards may cause unemployment and disinvestment due to the additional costs incurred by environmental regulations (Golombek and Raknerud 1997). In contrast, PH claims that properly designed environmental regulations can catalyze innovations, which to some extent offset compliance costs (Porter 1991; Porter and van der Linde 1995). Such an “induced innovation” effect may lower the costs of complying with environmental standards on the one hand and generate new competitive advantages on the other (Palmer et al. 1995; Kumar and Managi 2009).

Modified article originally published in [Zhou, Y., S. Zhu and C. He (2017) How Do Environmental Regulations Affect Industrial Dynamics? Evidence from China’s Pollution-Intensive Industries, Habitat International, 60 pp. 10–8]. Published with kind permission of © [Elsevier, 2018]. All Rights Reserved.

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Notes

  1. 1.

    This indicator has been used in some recent studies (He et al. 2012, 2013). However, data is only available at the provincial level. We hence prefer our current indicator to this one.

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  1. College of Urban and Environmental Sciences, Peking University, Beijing, China

    Canfei He & Shengjun Zhu

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He, C., Zhu, S. (2019). How Do Environmental Regulations Affect Industrial Dynamics in China?. In: Evolutionary Economic Geography in China. Economic Geography. Springer, Singapore. https://doi.org/10.1007/978-981-13-3447-4_11

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