Opportunity cost of environmental regulation in china’s industrial sector

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Article number8579
Journal / PublicationInternational Journal of Environmental Research and Public Health
Volume18
Issue number16
Online published13 Aug 2021
Publication statusPublished - Aug 2021

Abstract

In this paper, we employ a directional distance function to estimate the opportunity cost arising from environmental regulations in China’s industrial sector. The change of opportunity cost is decomposed mathematically into two components including technical change and input change. Our results show that the opportunity cost attributed to environmental regulation is nil in some regions. The change of opportunity cost is marginal at the national level, as the positive effect of technical change is canceled out by the negative impact of input change on opportunity cost. Built on our mathematical decomposition, we further estimate the effects of environmental regulations on opportunity cost using a mediation model. It shows that environmental regulation has a significantly positive direct effect and a significantly negative indirect effect through foreign direct investment on opportunity cost. Our findings suggest, firstly, that inward FDI in China’s industrial sector represents relatively dirty production technology; and, secondly, industrial production has trans-ited towards a less carbon‐intensive input mix. This paper, therefore, provides new insights for the recent dynamics of carbon abatement performance of China’s industrial sector with policy implications.

Research Area(s)

  • Environmental regulation, Input change, Mediation effect, Opportunity cost, Technical change