The Impact of Environmental Pollution Control Investment
on Industrial Structure in China
L Xiao
1,a
, P Dong
2, b
and L M Dong
3,c, *
1
Instituteof Economics and business administration, Central China Normal
University,Wuhan, Hubei, China
2
Colorado State University, Colorado, The United States
3
Instituteof Economics and business administration, Central China Normal
University,Wuhan, Hubei, China
a b c
Abstract. In order to achieve a win-win result of economic development and ecological
civilization and take the road of sustainable development, China has paid more and more
attention to environmental regulation. Increasing investment in environmental pollution
control year after year also responds to the national call for build ing a “rich, strong,
democratic, civilized, harmonious and beautiful”. Through the regression analysis of the data
of 30 provinces and regions across the country, the article added environmental pollution
treatment investment to the measurement model to examine the impact of environmental
investment on the industrial structure. Empirically, the overall increase in environmental
investment from the country will lead to the optimization and upgrading of the industrial
structure. Specific to different regions, combined with the regional characteristics of the
industry, there are different needs for the distribution of environmental investment.
1. Introduction
With the development of nearly 40 years of reform and opening up, China’s economy has witnessed
a quantum leap in development. While harvesting the fruits of the rapid development of economic
construction, it also buried the hidden danger of long-term development - environmental issues.
In the report of the Party’s Nineteenth Congress, the words “ecological civilization” painted a
bright picture and required the thorough integration of environmental protection into economic,
political, cultural and social aspects. In today's vigorous development of the cause of environmental
protection, investment in the treatment of environmental pollution has increasingly led to extensive
discussions among scholars. To pay back the “environmental protection account” owed is not simply
to solve the problem of serious environmental pollution by sacrificing the speed of economic growth
and reducing economic growth. The economic and ecological environment are interdependent and
affect each other. Increasing the regulation of the environment and the investment in the treatment of
environmental pollution, whether it can bring benefits to the existing structure of the national
economy and bring about gains to the economic development mode is the focus of this article.
140
Xiao, L., Dong, P. and Dong, L.
The Impact of Environmental Pollution Control Investment on Industrial Structure in China.
In Proceedings of the International Workshop on Environmental Management, Science and Engineering (IWEMSE 2018), pages 140-146
ISBN: 978-989-758-344-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

2. Literature review
At present, empirical and theoretical studies on the relationship between environmental pollution
treatment investment and economic growth have become more mature at home and abroad. Due to
the antecedence of development, foreign countries began to study economic growth and
environmental issues earlier. D’Arge[1] (1971) used the Harold-Domar model to demonstrate that the
natural environment and economic growth interact. Subsequently, Forster[2] (1973), based on the
neoclassical growth model, assumed that environmental pollution was caused by the input of physical
capital, and inventory environmental pollution was regarded as the production factor that introduced
the economic growth production function. Because there are two variables of pollution and
consumption in the utility function, pollution governance investment squeezes out the resources used
for production. Therefore, at the equilibrium point, the consumption and capital level are lower than
the neoclassical model. With the deepening of research, there has been a larger branch of the
discussion on environmental issues. Moe [3] (2010) studied the relationship between energy
consumption and long-term economic growth, and argued that in order to avoid future technological
lock-in, importance must be attached to policies that can directly influence the determination of
regional leading industries and energy consumption systems. In recent years, Chinese scholars have
also conducted extensive research on the issue of economic growth. Among them, research on
environmental pollution treatment investment issues is very rich. Huang Jing [4] (2011) established
an endogenous growth model for human capital, which introduced environmental and environmental
pollution governance into the framework of endogenous growth for analysis. To achieve sustainable
development, we must adopt increasingly cleaner production technologies and develop
environmentally friendly economies through technological innovation. Zhang Yuesheng [5] (2016)
added environmental governance factors to the Solow model, deducing that environmental
investment has an impact on the economic growth path, but it does not necessarily reduce the
economic growth rate. And through empirical analysis, it is found that increasing the amount of
environmental governance investment will, to a certain extent, result in a decline in economic output,
but it is good for long-term development. Yang Hao [6] (2009) believes that a certain proportion of
the value of output is put into environmental governance and emission reduction control is the
optimal growth path for economic growth and environmental protection. Dai Guiping [7] (2010)
constructed a two-stage model of the relationship between environmental governance input and
economic growth. The analysis proves that China is already in the second stage of environmental
governance investment and promotes economic growth. Therefore, it is believed that environmental
governance investment can not only be promoted through economic mechanisms. Growth can also
play its promotion function by improving the environmental carrying capacity. Ma Zhaoliang [8]
(2017) added key natural capital to empirical analysis. The results show that the accumulation and
spillover of human capital caused by key natural capital is one of the key mechanisms that natural
capital promotes regional economic growth. It is of great significance to increase investment in
environmental pollution control to accumulate natural capital and thus achieve economic growth
benefits. Gan Jiawu [9] (2017) based on the "double dividend" perspective, found thatThe second
paragraph is indented. China's current environmental regulation has not yet achieved the "green
dividend" to alleviate environmental pollution, but achieved a "blue dividend" that optimized the
economic development mode.
Through the study of scholars at home and abroad, it can be seen that basically scholars believe
that investment in environmental pollution control has a positive effect on economic growth. Based
on the research of the scholars, this article uses empirical analysis to further explore the issue of
economic growth - whether environmental pollution governance contributes to changes in the
industrial structure in the context of promoting economic growth. This article will use the national
data for analysis, taking into account the regional economic development differences, the country
The Impact of Environmental Pollution Control Investment on Industrial Structure in China
141

will be divided into three major regions, testing the impact of environmental governance investment
on the changes in China's economic industrial structure.
3. Theoretical analysis
3.1. Status quo of China's environmental pollution control investment
China's environmental pollution control is mainly composed of urban environmental infrastructure
investment, industrial pollution source investment and construction projects "three simultaneous"
environmental protection investment.
From 2006 to 2015, the total investment in environmental pollution control has greatly increased,
with a total investment of 256.6 billion yuan to 880.63 billion yuan. The total investment in
environmental pollution control in 2015 accounted for 1.28% of GDP. Among them, the total
investment in urban environmental infrastructure construction reached 494.68 billion yuan, the total
investment in industrial pollution sources treatment was 77.368 billion yuan, and the total investment
in "three simultaneous" environmental protection projects for construction projects was 308.58
billion yuan. With the rapid economic growth, investment spending on environmental issues has
increased year by year, demonstrating the country’s confidence in establishing an environment-
friendly economy and society.
3.2. Status quo of China's industrial structure
Figure 2 shows the structure of China's industrial structure from 2007 to 2016. In 2016, China's
primary industry added value accounted for 8.6% of total GDP, secondary industry added value
accounted for 39.9% of total GDP, and tertiary industry added value accounted for 51.6% of total
GDP. The proportion of the tertiary industry accounts for more than half, the proportion of the
primary industry and the secondary industry shows a declining trend year by year, indicating that the
industrial structure of our country is gradually being optimized.
3.3. Relationship between environmental pollution treatment investment and industrial structure
(1) Investment in the treatment of environmental pollution is basically flowing into the
environment-intensive secondary industry. Increasing investment in environmental issues will
help improve the cleaner production efficiency of the secondary industry, thereby accelerating
technological innovation and guiding the transformation of industries in the secondary industry
that places a heavy burden on the environment.
(2) Investment in environmental pollution treatment will substantially increase the cost of
production processes, and will cause consumption and investment demand to tilt toward the
environment-friendly industry, thereby optimizing the industrial structure.
China's current environmental pollution problems are largely concentrated in the secondary
industry. Under the premise that the primary industry structure is relatively solid, the use of the
proportion of the tertiary industry to the total output value will be used to measure the changes in the
industrial structure.
IWEMSE 2018 - International Workshop on Environmental Management, Science and Engineering
142

Figure 1. Investment in Environmental Governance 2006-2015
Source: China Environmental Protection Database.
Figure 2. Composition of China's Industrial Structure, 2007-2016
Source: National Bureau of Statistics of People's Republic of China.
4. Empirical analysis
This paper selects 30 provincial-level data from the whole country (Hainan Province has not been
selected due to incomplete data) as a sample for panel data model regression. The selected indicators
are the industrial structure ratio (the ratio of tertiary industry to GDP), capital stock, and labor capital,
investment in environmental pollution, urbanization rate, and openness to the outside world.
The specific model is:
IS = α0 + α1LnLaborit+𝛼2𝐿𝑛𝑘i𝑡 + 𝛼3𝐿𝑛𝑅𝑖𝑡−1 + 𝛼4𝑜𝑝𝑒𝑛𝑖𝑡 + 𝛼5𝑢𝑟𝑏𝑖𝑡 + 𝑢𝑖𝑡 + 𝜀𝑖𝑡
Among them, the explained variable “IS” express the industrial structure ratio, and the
explanatory variable “R” express the investment for environmental pollution control. The control
variables are: Labor is labor capital, K is capital stock, open is openness, and urban is urbanization
rate. In the model, index “I” and “t” respectively represents the period data and the province. Index
“u” measures the individual effect. 0-1 dummy variables are used to divide 30 provinces into east,
middle, and west regions, and “ε” expresses a residual disturbance item. The investment in
environmental pollution control will not produce significant benefits in the current investment period,
so we uses an observation method that lags the t-1 period for the explanatory variable R. Aimed to all
large quantifiers, which are inconsistent with other scalar magnitudes of the study, taking the
The Impact of Environmental Pollution Control Investment on Industrial Structure in China
143

logarithm of the model can eliminate this large difference in magnitude, eliminate heteroscedasticity,
and ensure the stability of the data.
Table 1. Effect of Investment in Environmental Pollution Treatment on Industrial Structure.
VARIABLES
(1)east construction
(2)west construction
(3)mid construction
lncapital
-0.140***
0.023 4
-0.0603***
(0.0236)
(0.022 7)
-0.01 94
lnlabor
0.0830***
-0.03 00
0.017 9
(0.0155)
(0.022 4)
(0.0226)
lneinvest_1
0.0688***
-0.0122**
0.0189**
(0.0172)
(0.00570)
(0.00793)
urban
0.426***
-0.289***
0.302***
(0.0626)
(0.066 4)
(0.0436)
open
0.0224
0.102
-0.379***
(0.0178)
(0.066 4)
(0.0694)
2008.year
0.00875***
-0.00289
0.004 78
(0.00297)
(0.00503)
(0.00448)
2009.year
0.0385***
0.011 6
0.007 09
(0.00628)
(0.010 9)
(0.00900)
2010.year
0.0446***
-0.00196
0.008 27
(0.00971)
(0.014 3)
(0.0126)
2011.year
0.0241**
-0.00208
0.002 11
(0.0101)
(0.015 6)
(0.0131)
2012.year
0.0483***
0.009 99
0.017 2
(0.0123)
(0.018 4)
(0.0161)
2013.year
0.0599***
0.037 7*
0.0351**
(0.0136)
(0.019 9)
(0.0172)
2014.year
0.0792***
0.0480**
0.0528***
(0.0156)
(0.022 9)
(0.0191)
2015.year
0.105***
0.0741***
0.0885***
(0.0171)
(0.024 9)
(0.0214)
2016.year
0.130***
0.0887***
0.109***
(0.0179)
(0.027 2)
(0.0231)
Constant
0.529***
0.511***
0.602***
(0.129)
(0.043 6)
(0.0915)
Observations
100
120
80
Number of year
10
10
10
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
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Table 1 is the dynamic panel empirical evaluation of the environmental governance investment on
the industrial structure. From the regression results, the effect of environmental governance
investment on the eastern industrial structure was significant at the 1% level, and the effect on the
industrial structure of the central and western regions was significant at the level of 10%. Specifically,
because of the large gap in economic development among the three major regions in China, the
industry base and development focus between regions is different. Through the data, we can see that
for the eastern region, a 1% increase in investment in environmental pollution treatment will result in
an optimization of 6.88% of the industrial structure; for the western region, a 1% increase in the
amount of environmental investment will reduce the ratio of the tertiary industry by 1.22%. %; for
the central region, the investment in environmental pollution control has not increased by 1%, which
will bring about an increase of 1.89% in the industrial structure. Environmental investment has led to
technological progress and has guided the flow of capital to the tertiary industry in an
environmentally friendly industry. For the western region, the development of the tertiary industry is
relatively weak, relying mainly on the environment-intensive industries to stimulate rapid economic
growth and catch up with developed regions. The management of ecological civilization can only
reduce the degree of damage to the environment, but it cannot guide industrial transformation.
Investments such as sewage charges may serve as a threshold for the development of secondary
industries, allowing more capital to flow into the secondary industry. As for the control variables, the
urbanization rate is significant at the level of 1%, and it can be demonstrated that China's current
urbanization brings profound changes to the industrial structure, and urbanization will change the
distribution and migration of industries. The degree of openness to the outside world is not
significant. This may be due to the inconsistency between the changes in the total volume of regional
import and export and the pace of regional GDP growth.
In view of the overall situation of the country, when weakening the differences in the
development of different regions, the impact of investment in environmental pollution treatment on
the industrial structure is positive. Judging from the empirical results, our country’s investment in
environmental structure is positive. Judging from the empirical results, our country’s investment in
environmental issues has optimized the industrial structure and has had a positive effect on industrial
upgrading and ecological civilization.
5. Conclusions
Under the background that environmental pollution treatment investment will bring benefits to
economic growth, the article studies the impact of environmental pollution treatment
investment on the industrial structure. Through theoretical and empirical analysis, it appears from a
nationwide perspective that increasing environmental investment is conducive to the transformation
of the industrial structure to a friendly economy. Due to the historical development and the
unbalanced nature of interregional resources, the eastern, central and western regions of China have
different sensitivity to the industrial benefits brought by investment in environmental pollution
control. For the developed eastern regions, the economic base is solid and the tertiary industry itself
is relatively mature. The process of deepening industrial structure optimization will be smoother. The
central region is in a critical period of industrial transformation. From 2016 to 2025, it is the “new
decade” for the rise of central China.
The central region should take advantage of locational conditions, accelerate the innovation and
development, accelerate the green development, and adjust and optimize with the help of the
investment plan for environmental pollution control. Industrial structure, solid foundation for
development. Firmly Grasp the Opportunity of "New Decade" and Realize the Industrial
Transformation. The western region is constrained by natural and socio-economic conditions. From
the perspective of industrial development, the main support points of the economy lie in the energy
and resource industries. These industries threaten ecological civilization. At this stage, it is necessary
The Impact of Environmental Pollution Control Investment on Industrial Structure in China
145

to reduce the ecological pressure in the western region by increasing investment in environmental
governance, and ensure the coordinated growth of industrial growth, efficiency, and structure in the
western region.
Therefore, make the following suggestions:
(1) It is necessary for China to increase its support on the basis of increasing investment in
environmental pollution control year by year, and to strengthen the role of government
finances in environmental subsidies.
(2) Encouraging enterprise technological innovation, the government guides the clean production
technology of polluting enterprises.
(3) Based on local conditions, and in combination with the inter-regional environmental system,
allocating various environmental construction funds. The investment in urban environmental
infrastructure construction, investment in industrial pollution sources, and the construction of
"three simultaneous" environmental protection investments are targeted. Consider the actual
development level of the three major economic regions and implement environmental
regulations.
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