Environmental Regulation, Technological Innovation, and Export Competitiveness: An Empirical Study Based on China's Manufacturing Industry.

Abstract

A current and universal challenge, particularly in developing nations, is the establishment of effective environmental regulation policies that protect the ecological environment without adversely affecting the international competitiveness of the domestic manufacturing industry. To deal with this dilemma, this study investigates the export competitiveness of China's manufacturing industry from the viewpoint of export value added. The Porter hypothesis is applied for an empirical investigation of the effect of environmental regulation on export competitiveness and to determine the presence of intra-industry heterogeneity. Furthermore, this study seeks to understand the mechanisms through which environmental regulation affects export competitiveness by exploring the two main approaches to technological innovation. The findings reveal that environmental regulation has a promotion effect of approximately 2% on the export competitiveness of China's manufacturing industry; however, this effect is non-linear and displays a "U-shaped" tendency, indicating that certain prerequisites must be fulfilled to validate the Porter hypothesis. In addition, the effect of environmental regulation displays significant intra-industry heterogeneity, which is evident primarily in heavily polluting sub-industries and to a lesser extent in moderately polluting sub-industries but insignificant in lightly polluting sub-industries. Environmental regulation also differs significantly in the mechanisms through which it affects different approaches to technological innovation. Independent research and development is affected by environmental regulation through the compliance cost effect, which limits export competitiveness, while technology introduction is affected by the innovation offset effect, which favors export competitiveness. These findings offer political implications for the sustainable development of the ecological environment and foreign trade.

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