By Yangsiyu LU March 9, 2026
🎉🎉🎉 Congratulations to Professor Yangsiyu Lu!
We are delighted to share that Professor Yangsiyu Lu has collaborated with Jacquelyn Pless from the MIT Sloan School of Management to publish a research article in Journal of Public Economics, a leading journal in public economics, titled “Greening to Grow: Evidence from Environmental Regulation and Industrial Firm Productivity in China.”
This study examines China’s “Two Control Zones” (TCZ) air pollution regulation and provides new evidence on how environmental policies influence firm productivity. Using detailed micro-level firm data, the research shows that environmental regulation is not a barrier to economic growth. Instead, it can enhance productivity by encouraging more efficient market dynamics and technological upgrading. The findings also reveal significant heterogeneity across industries with different pollution intensities and across firms with different ownership structures.
The study identifies three key mechanisms through which environmental regulation can achieve the dual goal of pollution reduction and productivity improvement:
1️⃣Market selection: Stricter environmental standards raise compliance costs, leading less productive firms to exit the market. The study finds that regulated firms experience a 1.9 percentage point higher exit probability, with low-productivity firms disproportionately affected. This “survival of the fittest” process improves overall industry efficiency.
2️⃣Resource reallocation: As inefficient firms exit, resources such as capital, labor, and market share shift toward more productive firms. Surviving firms in less-polluting industries expand production—output increases by 7.9%, accompanied by higher labor and capital inputs. In more pollution-intensive industries, firms improve efficiency mainly by reducing intermediate inputs and optimizing energy use.
3️⃣Within-firm upgrading: Environmental regulation also stimulates internal transformation within firms. Companies upgrade production technologies, renew capital equipment, and increase the share of skilled labor, leading to improvements in the productivity of labor, capital, and intermediate inputs.
Together, these mechanisms illustrate how well-designed environmental policies can simultaneously promote environmental protection and economic efficiency, offering valuable insights for developing countries seeking to balance sustainability and growth.
“Journal of Public Economics” is a leading international journal in public economics, indexed in the Social Sciences Citation Index and ranked JCR Q1 in the economics category. The journal has an impact factor of 5.9, reflecting its strong academic influence and global reputation.
👏👏👏 We extend our warmest congratulations to Professor Yangsiyu Lu and Professor Jacquelyn Pless on this remarkable achievement!
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