The role of the intensity of environmental regulation and corruption in the employment of manufacturing enterprises: Evidence from China

The complexity of environmental regulation on the economic development and the resulting profound spatial effects are central concerns of countries with economies in transition. Furthermore, the impacts of implementation bias on the intensity of environmental regulation introduced by corruption in the employment of manufacturing enterprises are worth to receive further discussion. However, existing studies have not included corruption into the theoretical framework of the intensity of environmental regulation and enterprise employment, nor has the influencing mechanism of the intensity of environmental regulation and corruption in the employment of manufacturing enterprises been explored. This paper uses data from the World Bank's Investment Climate Survey of 18 China's cities in 2003 to examine the impact of the intensity of environmental regulation and corruption on the employment of manufacturing enterprises, and explore their influence mechanisms via output effects and substitution effects in a theoretical framework based on the partial static equilibrium model. The findings demonstrate the following: First, the intensity of environmental regulation has a negative impact on the employment of manufacturing enterprises through both output effects and substitution effects. Second, corruption can also affect employment through both output effects and substitution effects and can furthermore weaken the effects of the intensity of environmental regulation. Third, the impacts of both corruption and the intensity of environmental regulation on the employment of manufacturing enterprises are heterogeneous across enterprises due to differences in enterprise scale, corruption tolerance, and ownership structure. Therefore, policy-makers need to not only consider the impacts of the intensity of environmental regulations on the employment of manufacturing enterprises but also the effects of corruption on the intensity of environmental regulations and the employment of manufacturing enterprises with regard to output and substitution effects when formulating environmental regulations.