Impact of China’s Local Government Competition and Environmental Regulation on Total Factor Productivity

Abstract

In the transition of China’s economy toward high-quality development, it will be increasingly important to coordinate the relationship between local government competition, environmental regulation, and the transformation of the economic growth mode. To explore the impact of local government competition and environmental regulation on total factor productivity (TFP), in this study empirical analysis models were established using panel data of 30 provinces in China from 2001 to 2017. Local government competition was measured from the perspectives of foreign direct investment (FDI), fiscal expenditure, and tax. The results show that local government competition has a positive impact on the improvement in TFP. Taking environmental regulation into consideration, the impact of local government competition on TFP is weakened. Furthermore, under the current intensity of environmental regulation, local government fiscal expenditure competition and tax competition both lead to improvement in TFP, while FDI competition has the opposite effect. This paper explores the heterogeneity of the impact of local government competition and environmental regulation on TFP under different local government competition levels. Under the influence of environmental regulations, local government FDI competition has a negative impact on the improvement in TFP, particularly in “low” FDI competition areas. Local government fiscal expenditure competition has a positive impact on the improvement in TFP, particularly in “low” fiscal expenditure competition areas. The current level of local government tax competition has a negative impact on the improvement in TFP in “high” tax competition areas, whereas it has a positive impact on the improvement in TFP in “low” tax competition areas.