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Does Environmental Regulation Shape Entrepreneurship?

Author

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  • Dongmin Kong

    (Huazhong University of Science and Technology)

  • Ni Qin

    (Huazhong University of Science and Technology)

Abstract

This study investigates the causal effect of environmental regulation on entrepreneurship. By using China’s Two Control Zones policy in 1998 as an exogenous shock and a novel dataset about firm creation, our difference-in-differences-in-differences estimation shows that environmental regulation significantly deters entrepreneurship in pollution-intensive industries. Our results are robust to a series of endogeneity and robustness tests. A plausible mechanism is that the stringent regulation increases firm’s production costs, thus reducing expected profits and crowding out entrepreneurship. Moreover, we find that environmental regulation has a sizable and statistically significant effect only on entrepreneurship in areas with low corruption, high institutional quality, as entrepreneurs can hardly evade regulations through rent-seeking activities or other means.

Suggested Citation

  • Dongmin Kong & Ni Qin, 2021. "Does Environmental Regulation Shape Entrepreneurship?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(1), pages 169-196, September.
    • Handle: RePEc:kap:enreec:v:80:y:2021:i:1:d:10.1007_s10640-021-00584-8
    DOI: 10.1007/s10640-021-00584-8
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