Spatial Spillover Effects of Formal Environmental Regulation on Urban Green Total Factor Productivity

This study investigates the spatial implications of formal environmental regulation for urban green development by separating command-and-control tools from market incentive-based approaches and analyzing a 280-city panel dataset from China spanning 2012–2024. A spatial Durbin model is employed to assess the spillover effects of these regulatory tools on GTFP. The estimation results show that command-and-control regulation exerts a significant negative spillover effect on neighboring cities and is also associated with a reduction in local GTFP. In contrast, market-based regulation generates positive spillovers that benefit surrounding cities and is linked to improvements in both local and nearby GTFP. Regional heterogeneity analysis shows that command-and-control regulation produces negative but insignificant spillovers in the eastern and western regions and positive yet insignificant effects in the central and northeastern regions, whereas market-based regulation generates significant positive spillovers across all regions. Mediation analysis suggests that industrial relocation has a significant suppression effect in the relationship between CER and GTFP. When the carbon emissions trading scheme is used as a proxy for market-based regulation, the policy initially appears to suppress GTFP, although its effect tends to become positive over time. Informal environmental regulation is found to enhance local GTFP and to generate favorable spillovers for neighboring cities. Taken together, these findings suggest that policymakers should place greater emphasis on market-based and informal regulatory approaches, while encouraging firms and the public to play a more active role in advancing urban green development.