The Nonlinear Causal Relationship Between Environmental Regulation and Technological Innovation—Evidence Based on the Generalized Propensity Score Matching Method

The existing research on testing Porter’s hypothesis has not considered the selective bias in the sample when establishing a model. However, the selective bias is likely to cause instability of estimation results and reduce the reference value of conclusions. This article, based on individual enterprises in the China Industrial Enterprise Database, aims to verify the selective bias existing in previous research. Then, using the generalized propensity score matching method, a frontier method in the field of causal inference, we re-examined the causal relationship between environmental regulation and two types of technological innovation, weakened endogenous and reverse causal effects, and obtained a more complete and accurate dynamic impact of environmental regulation on the level of technological innovation for enterprises. The main conclusions of this paper are as follows: (1) The influence of environmental regulation on the level of process innovation has two dimensions: time and intensity, and the causal relationship between these dimensions changes from an N shape to an inversed-U shape over time. (2) The influence of environmental regulation on product innovation levels only includes the intensity dimension, and the two produce a U shape. (3) Process innovation and product innovation, to a certain extent, are reflected in the intriguing situation that they cannot gain and lose at the same time. (4) Light industries have a lower tolerance of environmental regulation than heavy industries, and they are more likely to be stimulated by environmental regulation. The conclusions of this paper can provide valuable advice to governments in relation to the formulation of environmental policies and laws.