**6. Conclusions**

To cope with air pollution, the "Two Control Zones (TCZ)" policy was issued and enacted by China's government in 1998. As the first air pollution regulation in China, the impact of the TCZ policy influences the development of following environmental regulations.

The results in our study use a difference in difference model that explores the effect of environmental regulation on green technology innovations and the role of human capital in it. We find evidence consistent with the hypothesis that the TCZ policy significantly increases the number of green patents of cities in two control zones. The result is also robust through the method of PSM–DID and changing the dependent variable. Most importantly, our study also points out the crucial role human capital plays in the mechanism. TCZ policy, as the signal of regulating air pollution and improving urban quality, has a positive

effect on the quantity and structure of human capital, leading to providing a talent pool for green technology innovation to reduce pollution.

To exploit the heterogeneity covered under the average treatment effect, the finding shows that TCZ policy is different in the R&D basis and foreign investment utilized. TCZ policy tends to improve more amounts of green patents in the cities with a stronger R&D base or with more FDI. The R&D base provides innovative talents for green technology innovation and FDI provides technology spillover and R&D funding for green technology innovation. The cities with those two characteristics have more ability to undertake the development and application for green patents to cope with TCZ policy.

The findings of this paper provide new insight into the Porter hypothesis, offering some valuable policy recommendations for developing economies. In the context of globalization, developing countries, as a link in the downstream production chain, are highly susceptible to becoming pollution havens. Policymakers of emerging economies draw environmental regulations to control pollution, while promoting the development of green technology innovation by attracting more high–quality human capital. In addition, based on our study, the government should pay more attention to strengthening its R&D base and attracting more FDI, as both of these conditions will enhance the positive impact of environmental regulation on green innovation performance.

There are also some limitations. First, the research sample of this paper is the city– level data in China. We can only control for regional and year effects. In the future, when the green patent data at the corporate level becomes available, we can study it from the perspective of micro firms. Second, green technological innovation can also be subdivided in terms of production processes, such as green process innovation and green product innovation. However, the data refinement is limited, and this paper only uses the number of green patent applications granted to measure the overall green technology innovation of cities. With the increasing availability of data, a comparative analysis of the variability in the impact of environmental regulations on the green production processes of cities will also be worthy of further research.

**Author Contributions:** Conceptualization, J.L., S.Z. and T.H.; Data curation, J.L. and T.H.; Formal analysis, J.L. and S.Z.; Investigation, S.Z.; Methodology, J.L. and S.Z.; Project administration, J.L.; Supervision, T.H. and D.N.; Validation, T.H. and D.N.; Visualization, T.H.; Writing—review & editing, J.L. and S.Z. All authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Data Availability Statement:** The data presented in this study are available on request from the corresponding author.

**Conflicts of Interest:** The authors declare no conflict of interest.
