Discussion Paper

No. 2019-13 | February 12, 2019
Can reducing carbon emissions improve economic performance? Evidence from China


As the problem of carbon emissions is becoming increasingly more serious around the world, how to balance carbon emissions reduction and economic growth has become an important issue in the field of ecological economics. China is the world's largest carbon dioxide emitter, and China's Low-Carbon Pilot (CLCP) policy has significantly reduced carbon dioxide emissions and achieved expected benefits. However, is environmental quality improving at the expense of economic growth?   Based  on   panel  data  from  286   Chinese   prefecture-level   cities  and  from  Chinese micro-industrial  enterprises  from  2001  to  2013,  this  article  focuses  on  the  causal  effect  of environmental policy on regional economic growth and the benefits and changes in the behavior of enterprises through a quasi-natural experiment and the difference-in-differences (DID) method. The results are as follows. First, the CLCP policy significantly promotes regional economic growth. Moreover, as the implementation time of the policy continues, environmental regulation has a greater effect of promoting economic growth. Second, although the CLCP policy significantly increases various production costs, it also promotes the growth of enterprises' output and benefits. Third, under the pressure of the significant increase in enterprise cost caused by environmental regulation, enterprises choose the positive way of strengthening internal management, improving efficiency and increasing innovation instead of choosing the negative way of trans-regional transfer to exit the market; accordingly, enterprises finally achieve an improvement in output and benefits.

Data Set

JEL Classification:

O12, O13, Q38


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Cite As

Fei Yang, Beibei Shi, Ming Xu, and Chen Feng (2019). Can reducing carbon emissions improve economic performance? Evidence from China. Economics Discussion Papers, No 2019-13, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-13

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