Non-linear effects of environmental regulation and innovation – Spatial interaction evidence from the Yangtze River Delta in China

Abstract

Currently, China's environmental regulations are unprecedentedly strict. At the same time, China is emphasizing innovation development in the process of industrial upgrading. However, previous literature has not reached a consensus on the relationship between the environmental regulation and innovation. This paper takes the Yangtze River Delta, the most developed region in China, as an example, and uses the spatial econometric model based on the geographic matrix, economic matrix, and comprehensive relevance matrix of logistics enterprises to fully examine the relationship between urban environmental regulation and innovation development under different spatial interaction perspectives. The results show that: the relation between formal environmental regulation and innovation is inverse U-shaped. Spatial self-selection of environmental regulation in the Yangtze River Delta region weakens the enthusiasm of innovation to a certain extent. This paper argues that the main mechanisms through which environmental regulation affects innovation development are spillover effects and industrial structure effects. Finally, the paper proposes corresponding policy recommendations.