1. Introduction
Green development is the key to implementing the new development concept and realizing high-quality development, especially since economic development has entered a new era, and the importance of accelerating green development has become more and more prominent as the global community has become increasingly concerned about environmental pollution, energy consumption, and carbon emissions. Promoting green development is also an inevitable requirement for sustainable development [
1,
2,
3]. As an important indicator of green development, green total factor productivity (GTFP), compared with traditional total factor productivity (TFP), incorporates energy consumption and environmental pollution based on measuring technological change, which is more in line with the connotation of green development. Therefore, the realization of green TFP is not only a better reflection of the benefits of economic development but also an important manifestation of the enhancement of the capacity for sustainable development.
Since the externalities of environmental pollution can lead to market failure, solving environmental problems requires active government action. Environmental regulation is a key measure for governments to support green and sustainable development [
4]. The need to improve the environment, tackle pollution and emissions, and promote green development has driven policies related to environmental regulation in China. The Yangtze River Economic Belt (YREB), a giant economy spanning China’s east, middle, and west, has been experiencing acute conflicts between the development of the Yangtze River Basin and ecological safety for more than a decade, and ecological priority and green development have become inevitable strategic choices for the YREB. All provinces and cities in the Yangtze River Economic Belt have also introduced a series of environmental regulations to deal with environmental and developmental issues. So, what is the actual effect of environmental regulations on green total factor productivity (GTFP) in the Yangtze River Economic Belt? Additionally, what is the intrinsic mechanism of these elements? Does environmental regulation have a regionally heterogeneous impact on green total factor productivity?
Based on the above questions, this paper takes environmental regulation and green total factor productivity as the core variables and takes the panel data of cities in the Yangtze River Economic Belt from 2007 to 2019 as the analytical basis to test the above questions and explain the mechanism of environmental regulation on green total factor productivity to provide certain references for the formulation of environmental regulation policies, such as environmental governance and the “dual carbon” targets.
The three main innovations of this paper are as follows: (1) The innovative measurement of the level of environmental regulation. Most of the literature only focuses on a single environmental regulation policy, which cannot comprehensively reflect the government’s environmental governance policy and environmental regulation intensity. By constructing an indicator system for environmental words and using Python to textually analyze government work reports, this paper derives the level of environmental regulation in the Yangtze River Economic Belt, which can more comprehensively reflect the environmental regulation intensity of local governments in that year. (2) It supplements the literature on the policy effects of environmental regulation in cities in the Yangtze River Economic Belt, providing new empirical evidence on the impact effects of environmental regulation in the Yangtze River Economic Belt. (3) Most of the existing studies have been conducted from the perspectives of industrial enterprises and the provincial level, and few of them have explored in depth the impact of environmental regulations on green total factor productivity at the city level. Our study provides a new perspective on the impact of environmental regulation in the Yangtze River Economic Belt from the perspective of green total factor productivity at the city level.
The ability of environmental regulation to improve green total factor productivity (GTFP) is crucial for alleviating environmental pollution problems and promoting sustainable social development. The existing literature on the impact of environmental regulation on total factor productivity can be categorized into the following three types depending on the viewpoint.
The first view is Porter’s hypothesis: well-designed environmental regulations (ERs) can generate innovation compensation effects, improve production technology, partially or even completely offset the costs of environmental regulations, and promote GTFP [
5]. Many scholars have supported this theory through research and empirical analyses [
6,
7,
8,
9,
10,
11,
12,
13,
14]. For example, Jaffe and Palmer [
10], Hamamoto [
9], and Rassier and Earnhart [
13] state that ER can stimulate firms’ research and development (R & D) expenditures and further improve firm performance and total factor productivity (TFP). By investigating the European manufacturing sector, Rubashkina et al. [
15] found that ER is positively correlated with innovation activity. In addition, ER has been shown to have a positive impact on total factor productivity in China [
16]. Feng et al. [
7] demonstrate that market-based ER can effectively enhance GTFP at the national level. Moreover, a rational industrial structure can enhance the contribution of ER to GTFP [
17].
The second view is the inhibition hypothesis. This hypothesis argues that ER may increase production costs, crowd out investment, and deteriorate GTFP. for example, Gray [
18] finds that environmental regulations may inhibit total factor productivity (TFP) enhancement in U.S. manufacturing firms, and Barbera and McConnell [
19] demonstrate that overly stringent environmental regulations are detrimental to the TFP of industries. Environmental regulations increase firms’ capital constraints and reduce their output, affecting their total factor productivity development [
20]. Gray and Shadbegian [
21] classified factories into integrated and non-integrated factories and found that there is a negative (non-significant) relationship between environmental regulations and total factor productivity in integrated (non-integrated) factories. Lanoie et al. [
11] also observed a negative effect of environmental regulations on firm performance and that this negative effect is larger than the positive effect from R & D investments. In other words, the innovation compensation effect brought by environmental regulation can hardly compensate for the cost brought by environmental regulation, which ultimately leads to the deterioration of their green total factor productivity. Tang et al. [
22] suggest that command-and-control environmental regulation can hardly realize the win–win policy objective of the total factor productivity growth of firms and environmental sustainability. In addition, Hou et al. [
23] found that market-based environmental regulation, such as a carbon emission permit trading mechanism, may inhibit the enhancement of GTFP in China.
The third view is the uncertainty hypothesis, which argues that the impact of environmental regulation on total factor productivity is uncertain. With the gradual enrichment of research methods and diversification of research perspectives, scholars have found that the relationship between the two is not a simple facilitating or inhibiting relationship but a more complex one. For example, Becker [
24], using a sample of U.S. manufacturing firms, found that the impact of environmental regulations on firms’ total factor productivity may not be significant in regions with strict environmental regulations and relatively high environmental costs. Wang and Shen [
25] found that there is an inverted U-shaped relationship between environmental regulations and China’s environmental productivity, but that this inverted U-shaped relationship exists only in some sectors. Moreover, environmental regulation has also been shown to have an inverted U-shaped effect on green economy efficiency and regional economic development [
26], which is facilitated and then inhibited. On the contrary, some scholars proposed the existence of a U-shaped relationship between green total factor productivity and environmental regulation [
27,
28]. In addition, Luo et al. [
29] demonstrated that informal environmental regulation (market-based environmental regulation) and command-and-control environmental regulation have a dampening (facilitating) effect on green innovation. He et al. [
30], on the other hand, concluded that the effect of environmental regulation on green total factor productivity is not significant.
In summary, the existing literature has the following shortcomings: First, as an important economic corridor in China, the Yangtze River Economic Belt has little literature on the impact of environmental regulation on green total factor productivity. Secondly, the studies on the measurement of green total factor productivity mainly use the traditional DEA model or the SBM model that considers the undesired outputs, and there is little literature on the measurement of green total factor productivity using the super-efficient SBM model that considers the undesired outputs. Thirdly, most of the existing studies analyze the policy effects of environmental regulation from a single perspective of environmental regulation, which cannot reflect the government’s emphasis on environmental governance and the intensity of regulation from a global perspective.
Based on the existing studies and their shortcomings, this paper tries to expand from the following aspects: Firstly, using the SBM-GML model, the green total factor productivity of the Yangtze River Economic Belt (YREB) is measured, and the level and characteristics of the green total factor productivity of the YREB region are portrayed. Secondly, by constructing the indicator system of environmental protection words and applying the method of text analysis, the level of local environmental regulation was derived, which can reflect the environmental regulation strength of local governments in that year in a more comprehensive way and measure the environmental regulation strength of each city in the Yangtze River Economic Belt. Once again, through the construction of a two-way fixed effect model, the goal of this study is to empirically test the effect of environmental regulation on green total factor productivity in the Yangtze River Economic Belt at the city level, and finally, based on the empirical findings, put forward policy recommendations to promote the coordinated development of green total factor productivity.
A review of the existing literature reveals that the effect of environmental regulation on green total factor productivity may have both positive and negative aspects.
On the one hand, environmental regulation can have an innovation compensation effect, i.e., there is the “Porter hypothesis”. The Porter hypothesis was put forward by Harvard University professor Porter in 1991, who argued that environmental regulations can force enterprises to increase more R & D funding, thereby improving technological innovation. Improvements in technological innovation can increase firms’ productivity and profits, thus compensating for the additional costs of environmental regulation [
31,
32]. Therefore, environmental regulations can contribute to the growth of GTFP.
On the other hand, environmental regulation has a “cost effect”. Under the premise of the total amount of enterprise resources, to meet the requirements of environmental regulation, enterprises will invest part of the labor and capital production factors into the field of environmental management, which will increase the production and operation costs of enterprises from the total viewpoint (including the cost of environmental compliance and operating costs), and from the viewpoint of the cost structure, the proportion of R & D and production-oriented investment in the total ratio will decline, squeezing out part of the original expenditure on R & D and innovation and technology introduction. Therefore, while the negative externalities of environmental pollution are internalized, the productivity of enterprises is reduced, which inhibits the growth of GTFP.
The impact of environmental regulation on green total factor productivity is complex and cannot be simply defined as a facilitating or inhibiting effect, the impact of the effect of uncertainty, depending on the relative size of the “innovation compensation effect” and “cost effect”. When the “innovation compensation effect” is greater than the “cost effect”, environmental regulation can force enterprises to increase more R & D funds; to improve technological innovation, thereby improving enterprise productivity and increasing enterprise profits [
33,
34]; and to make up for the “cost effect” brought about by environmental regulation. The “cost effect” of environmental regulations can be compensated for by increasing the profitability of enterprises, thus enhancing green total factor productivity. When the “cost effect” is greater than the “innovation compensation effect”, the benefits brought by the “innovation compensation effect” can hardly make up for the costs brought by environmental regulations, which ultimately leads to the deterioration of green total factor productivity. The total factor productivity of green is deteriorating.
At the same time, both the “innovation compensation effect” and the “cost effect” emphasize the importance of technological innovation, which is an important factor influencing the production efficiency of enterprises and the main source of total factor productivity growth. Technological innovation, especially green technological innovation, is an important way for environmental regulation to affect green total factor productivity.
Based on the above discussion, we propose the following hypotheses:
H1: The impact of environmental regulation on green total factor productivity in cities in the Yangtze River Economic Belt is uncertain.
H2: Green technological innovation is an important mechanism through which environmental regulation affects green total factor productivity in cities in the Yangtze River Economic Belt.
The service industry, which is characterized by low energy consumption, low pollution emissions, and high added value, has a contributing effect on the enhancement of green total factor productivity. The secondary industry, represented by industry, consumes many natural resources and energy and produces many polluting emissions, which has a significant inhibiting effect on green total factor productivity. The primary industry is less polluting but accounts for a relatively small proportion of the total economy and has a limited role in promoting green total factor productivity. Therefore, increasing the proportion of tertiary industries such as the service industry can help optimize the industrial structure, promote the advanced industrial structure, reduce pollution emissions and energy consumption, and, thus, promote the increase in green total factor productivity; conversely, it may lead to the decline in green total factor productivity.
On the one hand, in the process of implementing the environmental regulation policy, with the banning of “small and messy” enterprises, the investment of enterprises may shift to the tertiary industry, which will increase the output value and proportion of the tertiary industry and promote the development of the industrial structure to the advanced level, thus promoting the improvement of the green total factor productivity.
On the other hand, however, the Yangtze River Economic Belt region is the main battlefield for China’s industrial construction and development, as well as China’s major industrial agglomeration and growth agglomeration area, with a good manufacturing industry foundation and a complete industrial system. The environmental regulation policy is more likely to reduce the backward production capacity in the secondary industry of the Yangtze River Economic Belt to be replaced by new environmentally friendly production capacity and to improve the capacity efficiency and output value of the secondary industry. At the same time, environmental regulation may promote green technological innovation, which improves energy efficiency and reduces production costs through iterative technological upgrading. According to cost theory, this will shift the production possibility boundary of enterprises outward, leading to an increase in product demand. To maximize profits, firms will increase factor inputs to expand production capacity, leading to an increase in output value in the secondary sector. Therefore, environmental regulation may not be able to enhance green total factor productivity through the path of industrial structure advancement by increasing the share of the tertiary industry.
Given this, the following research hypothesis is proposed:
H3: Environmental regulation may not be able to enhance the green total factor productivity of cities in the Yangtze River Economic Belt through the path of industrial structure advancement.
4. Discussion
This paper examines the impact of environmental regulations on green total factor productivity in the Yangtze River Economic Belt. Although existing studies have explored the impact of environmental regulations on total factor productivity, little literature has focused on the effects and mechanisms of environmental regulations on green total factor productivity at the city level in the Yangtze River Economic Belt. In this paper, we examine the effects of environmental regulations on green total factor productivity (GTFP) from 2007 to 2019 in 107 cities within the Yangtze River Economic Belt.
We find that the impact of environmental regulation on GTFP in the Yangtze River Economic Belt exhibits an inverted U-shape. As the intensity of environmental regulation increases, the effect on GTFP initially promotes and then turns to inhibit. Yan and Wang [
28] also identify an “inverted U-shape” relationship between the degree of environmental regulation and environmental productivity in their study of the impact of environmental regulation on industrial productivity in China. Similarly, Wang and Shen [
25] confirmed that environmental regulation (ER) has an inverted U-shaped effect on environmental productivity in China.
Although there have been studies with varying views on the impact of environmental regulation on total factor productivity, including promotion [
15,
40], inhibition [
22,
41], and uncertainty [
24,
42], these differences may be attributed to variations in research subjects, data, methods, and sample intervals.
Our results confirm the inverted “U”-shaped relationship between environmental regulation and green total factor productivity in the Yangtze River Economic Zone and identify a critical inflection point for the optimal intensity of environmental regulation, i.e., a critical value of 0.51. Until this threshold is reached, increasing the stringency of environmental regulation is advantageous, as mild environmental regulation can create an incentive to innovate, known as “Porter’s hypothesis”, compensating for the costs of environmental regulation and promoting GTFP. However, once the tipping point is exceeded, environmental regulation leads to a decline in GTFP. At this juncture, the cost of environmental regulation becomes too high, and to compensate for the environmental costs and maximize profits, enterprises leverage the high efficiency resulting from technological innovation and progress to increase factor inputs and expand production capacity. This results in increased energy demand, energy consumption, and carbon emissions, leading to a decline in GTFP. Thus, at higher intensities, environmental regulation has a dampening effect on green total factor productivity.
The results of the mechanism analysis show that environmental regulation in the Yangtze River Economic Belt is important for GTFP mainly through the pathway of green technological innovation, reaffirming the significance of technological innovation for enhancing total factor productivity [
5,
13], whereas the mechanism of industrial structure advancement is less apparent. This is related to the industrial structure and economic positioning of the Yangtze River Economic Belt. The region is China’s primary area for industrial construction and development, as well as a main industrial and growth cluster, with a robust manufacturing industry base and a comprehensive industrial system. Environmental regulation policies are more likely to reduce outdated production capacity in the secondary industry and replace it with new environmentally friendly production capacity, thereby improving production efficiency and output value. Therefore, environmental regulation in the Yangtze River Economic Belt may not enhance GTFP through the advancement of industrial structure that increases the share of the tertiary industry.
In conclusion, the feasibility of environmental regulation policies must be carefully considered. The goal of policy should be to balance the stringency of environmental regulation to achieve optimal policy outcomes. When environmental regulation is maintained within an appropriate range, it can positively impact overall economic and environmental performance. However, the principle of “too much of a good thing can be harmful” applies to policymaking, and only by accurately gauging the “degree” can benefits be maximized. When formulating environmental regulatory policies, it is essential to balance ecological benefits with economic costs to ensure that economic losses remain manageable.
Furthermore, the factors influencing economic activities are complex, and it is challenging to accurately measure factor inputs and actual outputs with a few indicators. The input–output indicator system established in this paper to measure GTFP may not be comprehensive and could differ slightly from reality. Therefore, future research should revisit the measurement method of GTFP in a more in-depth and multifaceted manner to enhance our understanding. Additionally, from a city perspective, the industrial layout of different cities also affects the relationship between environmental regulation and GTFP [
43], and the impact of environmental regulation on productivity varies across industries [
25]. Future studies will adopt an urban industry perspective to examine the differences in the effects of environmental regulation on GTFP between cities.