Does Environmental Regulation Weaken Industrial Competitiveness?Inspirations from China’s Iron andSteel Sector

Deng Yonghong 1, Zhang Qizi 2 and Chen Xiaodong 3
1  Social Sciences Literature Press, Beijing, China
2,3 Institute of Industrial Economics, Chinese Academy of Social Sciences (CASS), Beijing

Abstract: China’s economic growth is heavily influenced by exports, while reconciling environmental regulation and economic growth requires handling the relationship between environmental regulation and industrial competitiveness well. The effects of environmental regulation on industrial competitiveness are largely subject to the institutional design of environmental regulation. Despite numerous studies on the relationship between environmental regulation and industrial competitiveness, a consensus has yet to be reached. Aside from differences in research methodology, these studies failed to give sufficient consideration to the impact of environmental regulation on industrial competitiveness. Such effects can be negative or positive depending on the design of environmental regulatory policy. This paper has investigated the relationship between environmental regulation and the competitiveness of China’s iron and steel industry and discovered that tighter environmental regulation does not diminish the competitiveness of the iron and steel industry since the policy design of environmental regulation accommodates the tolerance of advanced production capacity and includes a reasonable cost sharing mechanism. This discovery is of important reference for China to develop rational policy design to balance the relationship between environmental regulation and industrial competitiveness.

Keywords: environmental regulation, industrial competitiveness, iron and steel industry, advanced production capacity, cost sharing mechanism

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