Dynamic effects of market-based environmental regulations on industrial green total factor productivity: evidence from a panel vector autoregressive model in China

With the dual constraints of resources and the environment, green growth has become the theme of industrial development in the new era. The transformation of economic growth patterns and supply-side structural reforms have introduced new requirements for industrial development. In this context, how a country’s environmental regulation policies affect its green growth is an empirical problem that requires resolution. Using an index based on the meta-frontier analysis framework, this study measures the regional industrial green index and its decomposition components under the constraints of energy and carbon emissions. We employed the panel vector autoregressive model and impulse response function tool to investigate the dynamic effects of different market-based environmental policies on industrial green total factor productivity (GTFP). Expenditure-style environmental regulation (lnEXP) generally exerts a limited effect on GTFP, while investment-style environmental regulation (lnINV) considerably promotes GTFP. The shock impacts of the two regulation policies on industrial GTFP exhibited considerable regional heterogeneity in terms of the response intensity, convergence path, and cumulative effect. The shock effect of lnINV was much higher in high-regulation regions than in low-regulation regions, while the opposite was observed for the impulse response effect of lnEXP. Moreover, a substitution relationship was determined between the two types of regulations in promoting GTFP. This study offers several policy recommendations in terms of encouraging “green investment,” deepening environmental tax reform, and coordinating the correlation between lnEXP and lnINV.