The Impact of Environmental Regulation on TFP of Industrial Enterprises in China:Direct and Indirect Effects

This study uses the provincial panel data of industrial enterprises in China during 1998~2012to examine the direct and indirect effects of environmental regulation on TFP.It shows China's environmental regulation has obvious influence on RD input and has significant direct and indirect effect on TFP,which suggests environmental regulation brings significantinnovation compensation effect,but because of the high cost of regulation,most of the innovation compensation effect are offset bycost effect.The study also finds whethercompliance costsof environmental regulation can bring moreinnovative compensation effectdepends greatly on the choice of measures and tools of regulation.