Positive or negative externalities? Exploring the spatial spillover and industrial agglomeration threshold effects of environmental regulation on haze pollution in China

As one of the efficacious environmental governance instruments, environmental regulations usually have been adopted to control haze pollution in most developing countries. However, as proved in recent researches, the relationship between environmental regulation and haze pollution remains uncertain. This paper develops a conceptual model and attributes this phenomenon to two reasons: the spatial spillover effect and industrial agglomeration threshold effect of effective environmental regulation. Spatial durbin model (SDM), instrumental variable (IV) and panel threshold model are used to estimate these effects based on 277 cities data in China from 2012 to 2016. The results confirm the spatial spillover effects of environmental regulations and haze pollution, which could influence the pollutant reduction effect through positive and negative spatial spillover effects. It also validates the thresholds of industrial agglomeration of approximately 0.818 and 1.271. Nevertheless, only 1.271 represents the turning point of the environmental regulation effect changing and environmental regulations could significantly reduce haze, only if it exceeds this numerical value. Moreover, the results have regional heterogeneity regarding spillover effect and threshold effect as well. The environmental regulation intensity in central and western regions plays a “multi-stage promotion” role on haze pollution emission with the adjustment of industrial agglomeration threshold, while it turns out to be a “triple-stage downward” trend in eastern China. At last, we put forward differential policies suggestions according to their industrial agglomeration levels.