(Correspondent: Feng Zhuoran) The paper "Environmental Regulation and Dynamic Productivity Changes in China: a Study from the Perspective of Heterogeneous Firms", authored by Professor Li Junqing and doctoral students Gao Yu and Xiang, was published in The Journal of World Economy, No.1, 2022.

Based on the heterogeneous firms framework, this paper investigates how environmental regulation shapes the static and dynamic process of productivity changes in firms and industries through three channels: the factor substitution effect, the innovation compensation effect and the resource allocation effect. The main results are as follows：(1) at the firm level, environmental regulation improves the productivity of higher-productivity firms and reduces that of lower productivity ones; and (2) at the industry level, environmental regulation is not conducive to the growth of the aggregate productivity of an industry when there is serious resource misallocation in it. These two conclusions and the respective roles of the three channels are verified using microeconomic data of Chinese industrial enterprises from 1998 to 2007. Therefore, environmentally friendly technological progress requires not only the unwavering implementation of environmental protection policies by the government at all levels, but also, and more importantly, the elimination of friction and institutional barriers to the movement of factors within an industry and across industries, and the reduction of resource misallocation and distortion with industries.