Environmental regulation and economic growth: regional heterogeneity and threshold effect in China

Balancing environmental regulation and economic growth is a pivotal challenge in sustainable development. This study aims to investigate the influence of environmental regulation on economic growth across both the national and subregional levels using data from 31 provinces in China from 1999 to 2018. Employing a two-way fixed-effect panel regression model, the analysis reveals that environmental regulation at the national level has a significantly positive effect on economic growth. Specifically, a 1% increase in the intensity of environmental regulation is associated with a 0.081% increase in per capita GDP. At the subregional level, the results indicate regional heterogeneity: environmental regulation significantly promotes economic growth in the eastern and western regions, whereas its effect in the central region—where regulatory intensity is higher—is not statistically significant. The study also explores the differential impacts of various types of environmental regulations on economic growth. Moreover, this study applied a panel threshold model to investigate the impact of environmental regulations on economic growth, addressing limitations in traditional models that often overlook the complex and nonlinear interactions involved. The results show that a significant single threshold effect is observed across all regions, indicating that the positive impact of environmental regulation on economic growth diminishes once the regulation intensity surpasses a certain threshold. These findings highlight the critical need for region-specific strategies to maximize the economic benefits of environmental regulations. Policymakers should aim to identify and sustain the optimal intensity of regulation to ensure sustainable economic growth.