The effect of environmental regulation competition on haze pollution: evidence from China's province-level data

Haze pollution has drawn lots of public concern due to its potential damages to human health. Strategic interaction of environmental regulation among local governments may lead to a race to the bottom and hinder air quality improvement. Still, current empirical evidence is scarce, especially from developing countries. Based on province-level panel data from 2004 to 2015, the paper employs a dynamic fixed effect spatial Durbin model to identify interactive patterns of environmental regulation and then investigate its environmental impact. Empirical results indicate that regional differences are observed in environmental regulation and haze pollution, and high-high and low-low clusters dominate the spatial pattern. Interactive patterns of economically similar provinces are dominated by strategic substitution, whereas provinces sharing common borders or belonging to the same region are dominated by strategic complementation. Further, both race to the bottom and race to the top effect are discovered in the asymmetric test. The reaction coefficient values are much more extensive when competitors implement laxer policies, indicating a more significant racing trend to the bottom. Overall, after controlling for the spillover effect and hysteresis effect of haze pollution, the strategic interaction of environmental regulation among provinces is not conducive to improve air quality. The consequence might be correlated with low environmental standards, weak regulation enforcement, and the "free-ride" motive in China. These findings will be of great significance for optimizing local government behavior and improving air quality.