Environmental regulation, geographic location and growth of firms' productivity in China

The impact of environmental regulations on firms' productivities is a hot topic at present, but little attention has been paid to the geographic location aspect. As the literature show two kinds of theories named and according to the impact of environmental regulations on firms' productivities, this paper empirically analyzes the influences of spatial difference and interdependence of environmental regulations on firms' productivity based geographic data and micro-firm-level data for the period of 2004-2007. Our results show that spatial difference of environmental regulations has a significant impact on firms' total factor productivity with an inverted U-shaped relationship. That is to say,appropriate intensity of environmental regulations could promote firms' productivities, but if the environmental regulations are too intensive, firms' productivity might decrease. The effect of spatial correlation of environmental regulation is significant. The environmental regulation of neighborhoods can promote the productivity of firms in native city. Environmental regulation has a significant impact on the firms with high efficiency, but no significant influence on firms with low efficiency. Besides, the impact of environmental regulation on productivity of pollution-intensive firms is variant according to geographic location. The promotion of environmental regulation on firms' productivity is stronger in the eastern region than in the central and western regions. Our research suggests different mechanisms for the Cost hypothesis and Porter hypothesis in the context of geographic location. The governments shall make different regulations in different parts of the country instead of one policy.