5. Environmental Policy Uncertainty

This study delves into the complex relationship between environmental regulations and corporate innovation, particularly focusing on how different intensities of regulation impact research and development (R&D) investment. The research centers around the Beijing-Tianjin-Hebei region's air pollution treatment plan, known as the 2+26 strategy, and its effects on firms' R&D activities. The study constructs a theoretical model to analyze the tradeoff between regulation stringency and firm innovation investment, revealing a threshold effect where R&D investment increases with higher regulation intensity but decreases with lower intensity. Empirical analysis using a difference-in-differences approach shows that firms in major polluting industries exposed to the 2+26 strategy significantly increased their R&D investment, supporting the weak Porter hypothesis. The study also explores the heterogeneous effects of firm characteristics, such as size, ownership, and industry, on the relationship between environmental regulation and R&D investment. Additionally, it discusses the extensive and intensive marginal effects of the policy, considering the spatial distribution of firms and the potential for industrial migration. The findings contribute to the literature by providing a theoretical model and empirical evidence on the relationship between environmental regulation and R&D investment, with implications for achieving a win-win solution between air pollution treatment and high-quality development.