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Centre for Building Sustainable Value

Yangsiyu Lu

University of Oxford, United Kingdom

Induced innovation from environmental regulation: Evidence from China



We take a heterogeneous difference-in-differences approach to estimate the effect of an environmental regulation on firm total factor productivity (TFP) in China. We study both “dirty” firms and (relatively) “clean” firms, which allows us to estimate net effects on all firms in regulated regions. We find that the regulation increases TFP by 8.6% for clean firms and 1.7% for dirty firms on average. The effects are driven partially by capital-labor substitution but more so by input factor productivity enhancements, especially for clean firms. Large, state-owned firms also appear to have significant bargaining power and likely avoid compliance. Clean small firms benefit the most, likely because they are most nimble and able to innovate quickly to improve processes and practices. We also explore the distributional consequences of the regulation and find that jobs increase most in the poorest and least-populated regions, but the jobs created offer relatively low compensation.


Yangsiyu Lu is pursuing a DPhil degree in Environmental Economics at the University of Oxford. Her research focuses on evaluating the impact of environmental policy on firms’ economic activities and how to drive technological innovation in energy transitions. She holds a master degree of Environmental Management from Ecole des Mines d’Albi and M.Eng and B.Eng in Environmental Science and Engineering from Shanghai Jiao Tong University. Prior to her DPhil, she held various professional positions working on the environment, such as with international organizations (UNEP in Japan), the private sector (Pernod Ricard in France) and NGOs (Green Startups Accelerator in China). She is fluent in Chinese, English and French.

Yangsiyu Lu

Yangsiyu Lu