The effect of environmental regulation intensity deviation on China's inclusive growth

This is the first attempt to explore the impact of environmental regulation intensity deviation on inclusive growth. An analysis framework in which the deviation between actual intensity and optimal intensity affects inclusive growth is constructed. Based on this analytical framework, this study uses panel data from 281 prefecture-level cities in China during the period 2004-2016 to investigate environmental regulation intensity deviation, as well as the feature, heterogeneity, and mechanisms of environmental regulation intensity deviation affecting inclusive growth. The empirical findings show that (i) environmental regulation has an inverted U-shaped effect on inclusive growth, but the actual intensity of environmental regulation in China is lower than the optimal intensity, which makes it difficult to give full play to its incentive role on inclusive growth; (ii) further grouping tests show that environmental regulation intensity deviation will inhibit inclusive growth within regions but promote inclusive growth between regions due to the difference in deviation; (iii) technological innovation, industrial transformation, and foreign investment have a partial mediating effect, which may be important mechanisms for environmental regulation intensity deviation to restrain inclusive growth; and (iv) the robustness test of informal environmental regulation supports the findings of formal environmental regulation and finds that the deviation of informal environmental regulation is more severe than that of formal environmental regulation. The empirical findings therefore suggest that policymakers should scientifically improve the environmental regulation intensity and optimize the environmental regulatory structure.