Environmental regulation and entrepreneurial activity: Evidence from the low-carbon city pilot policy in China

The low-carbon city pilot (LCCP) policy is a city-level environmental regulation policy proposed by China to implement climate action goals and achieve sustainable development, and has received widespread attention since the first batch of pilots was presented in 2010. This study systematically examines the causal effect of the LCCP policy on entrepreneurial activity by constructing a difference-in-differences (DID) model using panel data for 186 cities in China over the period 2008-2017. We found that the LCCP policy significantly promoted entrepreneurial activity and this effect gradually strengthened over time during the study period. A series of robustness tests support this finding. The results of the mechanism test suggest that the LCCP policy can discourage entrepreneurial activity by increasing production costs and also promote entrepreneurial activity by increasing human capital accumulation and promoting technological innovation. The results of the heterogeneity analysis indicate that non-command-and-control policy instruments can better promote entrepreneurial activity in the context of a comprehensive environmental regulation policy such as the LCCP policy. The results of the spatial spillover effects test show that the LCCP policy can significantly promote entrepreneurial activity in the neighboring areas, and this effect is greater than that of the pilot areas. This study provides empirical evidence and policy implications for how to better utilize the positive effects of the LCCP policy on economic development and provides a basis for policy makers to formulate environmental regulatory policies that balance environ-mental protection and economic development.