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Market or regulation? The competition effect between green finance and environmental enforcement on environmental quality and its “dominate-follow” pattern

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Abstract

Current research on environmental instruments often isolates the two mainstream types, market-based and regulation-based, overlooking their real-world interactions. In response, the intensity gap variable (EII_GAP) is constructed to link various instruments into a united system. Thus, based on the spatial econometrics of the spatial panel Durbin model (SPDM), the collective effects between market- and regulation-based environmental instruments on environmental quality are explored. Moreover, the political strategies for maximizing environmental benefits are discussed. Results show that the interaction pattern between market- and regulation-based environmental instruments on environmental quality is characterized by competition rather than cooperation. A unit widening in the intensity gap leads to 17 to 18% and 12 to 18% units of environmental quality improvement in local and adjacent areas, respectively. Furthermore, the “dominate-follow” approach as the most effective mode for maximizing environmental effects is proposed. This study recommends employing one type of instrument as the dominant while the other as the auxiliary. In provinces where one kind of environmental instrument takes domination, the environmental quality could be increased by around 8 to 113% after taking another contrary instrument as the auxiliary.

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Data availability

The data that support the fndings of this study are available on request from the corresponding author.

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Funding

This work was supported by the National Social Science Fund of China (grant number 20FGLB022).

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Authors and Affiliations

  1. School of Economics and Management, Beijing Forestry University, Haidian District, 35 Qinghua East Road, Beijing, 100091, China

    Xinmeng Tang & Tao Qin

  2. Accounting Department, Faculty of Commerce, Tanta University, Tanta, 31521, EL Gharbia Governorate, Egypt

    Moustafa Mohamed Nazief Haggag Kotb Kholaif

  3. Department of Economics and Management, Universiti Putra Malaysia, 43400, Selangor, Malaysia

    Xinyan Zhao

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  1. Xinmeng Tang
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Contributions

All authors contributed to the study conception and design. Material preparation, data collection, and analysis were performed by Xinmeng Tang, Tao Qin, Moustafa Mohamed Nazief Haggag Kotb Kholaif, and Xinyan Zhao. The first draft of the manuscript was written by Xinmeng Tang, and all authors commented on previous versions of the manuscript. All authors read and approved the final manuscript.

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Correspondence to Tao Qin.

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Highlights

• Intensity gap variable is constructed to link two types of environmental tools.

• Competition effects of two types of environmental instruments are confirmed.

• “Dominate-follow” is proposed as maxing environmental effect policy pattern.

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Tang, X., Qin, T., Kholaif, M.M.N.H.K. et al. Market or regulation? The competition effect between green finance and environmental enforcement on environmental quality and its “dominate-follow” pattern. Environ Sci Pollut Res 31, 9347–9370 (2024). https://doi.org/10.1007/s11356-023-31667-2

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