The Impact of Environmental Regulations on Technological Progress of the Pesticide Manufacturing Industry in China

Abstract

The Chinese government has been continuously strengthening environmental regulations. to promote the reduction in pesticide use. However, the issue of excessive pesticide use remains unresolved. Technological progress of the pesticide manufacturing industry plays a critical role in reducing pesticide intensity and is a key objective of environmental regulations for pesticides. This study examines the impact of China’s environmental regulations on technological progress of the pesticide manufacturing industry by using panel data from 30 provinces between 2004 and 2020 and constructing command-and-control and market-incentive environmental regulations. Empirical results show that environmental regulations have significantly promoted technological progress of the pesticide manufacturing industry, with market-incentive environmental regulations proving more effective than command-and-control environmental regulations. Regional analysis reveals that the eastern and western regions are consistent with the national results, while the central region shows heterogeneity. In the eastern and western regions, environmental regulations have fostered technological progress, generating an “innovation compensation effect”. However, the central region exhibits a dual effect. On one hand, environmental regulations have stimulated research in pesticide technologies; on the other hand, they have squeezed out investment in high-quality and innovative technologies, thereby hindering technological progress to some extent. Consequently, the government should enhance environmental supervision, revise environmental protection laws, and increase investments and subsidies for pesticide enterprises to foster technological innovation. Moreover, the formulation and implementation of environmental regulations should account for regional disparities.

1. Introduction

Excessive pesticide use is a primary source of agricultural non-point source pollution. China ranks first globally in total pesticide use [1], with the widespread issue of excessive use [2,3]. In 2022, China’s pesticide use totaled 1.19 million tons. In the economically developed eastern and central regions of China, pesticide application intensity in 2021 was 14.06 and 7.98 kg per hectare, both far exceeding the internationally recognized safe upper limit of 7.5 kg per hectare. Relevant research data indicate that the effective utilization rate of pesticides in China is only 40%, with the remainder entering the soil, water, and air, posing serious hazards to the ecological environment, food safety, and human health.

The excessive use of pesticides has significant negative externalities, and their governance depends on government environmental regulations. Environmental regulations, as an intervention tool, are an important means to reduce agricultural non-point source pollution, achieve coordinated development of the economy and resource environment, and ensure the sustainability of agricultural production [4]. Environmental regulations are primarily divided into two categories: command-and-control and market-incentive. Command-and-control environmental regulation primarily refers to relevant laws, regulations, environmental protection standards, and systems issued and implemented by the government for environmental protection. They are mandatory legal and administrative measures. With the country’s emphasis on green development and environmental protection, the government has issued pesticide environmental regulations such as the “Action Plan for Zero Growth in Pesticide Use by 2020”, the “Environmental Protection Law”, and “Regulations on the Administration of Pesticides”. Some local governments have also promulgated local environmental protection laws and regulations concerning pesticides. Market-incentive environmental regulation primarily utilizes market mechanisms and price mechanisms to control environmental pollution, including subsidies, investment in environmental pollution control, environmental protection tax (pollutant discharge fee), tradable emission permits, and other environmental regulatory measures. In 2016, the Ministry of Finance and the former Ministry of Agriculture issued the “Reform Plan for Establishing a Green Ecological-Oriented Agricultural Subsidy System”, proposing to reform and improve existing subsidies, highlight the green ecological orientation, and transform the agricultural development mode. Some local governments have also successively introduced policy measures to increase subsidies for low-toxic and low-residue pesticides, green pesticides, biopesticides, unified prevention and control, etc., through various means.

In recent years, the Chinese government has continuously strengthened its environmental regulations and has achieved certain results in reducing pesticide application. However, the overall governance effect remains inefficient. In most regions of China, the amount of pesticide applied per unit area is still far higher than the internationally recognized safe use limit of 7.5 kg per hectare, and the problem of excessive pesticide application has not been fundamentally and effectively resolved.

The technological progress of the pesticide manufacturing industry is important in reducing the intensity of pesticide use. The pesticide industry belongs to both the chemical industry and the biotechnology industry, making it a typical high-tech sector. The research and development of chemical and biological pesticide manufacturing technologies can update and optimize pesticide varieties, and efficient, low-toxic, and low-residue new chemical pesticides, biological pesticides, and green control technologies are crucial in reducing the intensity of pesticide use and mitigating agricultural non-point source pollution [5]. The main reason for farmers’ use of pesticides is the occurrence of pests and diseases. The more severe and prolonged the pest infestation, the higher the intensity of pesticide application by farmers. The research literature and practical experience in agricultural ecology and plant protection indicate that, due to natural environments, planting structures [6], changes in pest and disease spectra, and the emergence of pest and disease resistance [5,7], the effectiveness of old pesticides and control technologies either decreases or becomes ineffective. Farmers are forced to increase the concentration and frequency of pesticide application to ensure effectiveness. Ji et al. (2015) also pointed out that farmers generally reported that pests were “unbeatable and unending”, thus increasing the intensity of pesticide application [3]. Without timely replacement by new pesticides or new control technologies, farmers can only continue to use old pesticides in large doses, leading to a further increase in resistance and the continuous overuse of pesticides. These reasons may be significant factors contributing to the widespread overuse of pesticides and the slow development of pesticide reduction in China. The research and development of new chemical pesticides, biological pesticides, and control technologies are conducive to optimizing the structure of pesticide products, improving the scientific and rational use of pesticides, and helping to mitigate and slow down the problem of pest resistance. This is of great significance for both immediate and long-term pesticide reduction goals [5].

The main problems in the research of the pesticide manufacturing industry in China are as follows: (1) The pesticide industry is large but not strong, with low industry concentration and unreasonable industrial layout. There are numerous small, scattered, and weak pesticide enterprises. Currently, there are more than 1700 pesticide enterprises in China. According to the statistics of the China Pesticide Industry Association, the threshold for entering the top 100 pesticide sales enterprises in China in 2023 is CNY 662 million, and 77 enterprises have sales exceeding CNY 1 billion [8]. More than 95% of pesticide enterprises belong to small and medium-sized enterprises. Smaller pesticide companies have low levels of technological research and development and weak brand effects. Moreover, due to insufficient environmental protection facilities and investment, they are prone to a series of environmental pollution problems, leading to disorderly competition in the entire pesticide industry. (2) The structure of pesticide products is unreasonable. There are numerous old varieties of pesticides, among which approximately 70% have been produced and used for over 15 years, accounting for more than 80% of the total pesticide production. Many products have been in use for numerous years, resulting in increased resistance, decreased efficacy, elevated dosage, residue, and environmental risks. (3) Pesticide enterprises are weak in the independent creation and original innovation of pesticides. Among the more than 700 registered active ingredients of pesticides, there are about 50 independent innovation products in China, accounting for less than 10%. The pesticide industry is positioned at the middle and low end of the value chain, and its capacity for independently developed high-end pesticide manufacturing equipment and making breakthroughs in key production technologies is weak. (4) The development of environmentally friendly and green pesticides is a highly complex and interdisciplinary integrated system of engineering, which is characterized by substantial investment, a long cycle, and high risks. Enterprises encounter significant research and development difficulties and risks.

The advancement of pesticide manufacturing industry technology is also a crucial governance objective of the government’s environmental regulations for pesticides. With the continuous strengthening of national environmental protection efforts, the government has formulated a series of policies to promote technological advancement and industrial upgrading in the pesticide industry, optimizing the structure of pesticide products. In terms of the layout of the pesticide industry, the Chinese government has eliminated small and scattered pesticide enterprises, encouraged mergers and reorganizations among pesticide enterprises, and facilitated the entry of chemical pesticide enterprises into chemical industrial parks, thus promoting the intensification of pesticide production. This is conducive to the implementation of environmental protection measures and the achievement of industrial resource integration and technological upgrading. In the pesticide production process, the government has promulgated relevant environmental protection laws and regulations, conducted stricter supervision and inspection, and urged pesticide enterprises to improve production processes and promote clean production. In terms of pesticide product structure, the government actively promotes supply-side reforms in pesticides, proposes to accelerate the upgrading of pesticide products, bans old pesticide varieties with high toxicity, high risk and high resistance risk, implements a strict registration and approval system for new chemical pesticides, provides research and development support for efficient, low-toxic, low-residue new chemical pesticides, biological pesticides, and environmentally friendly formulations, and improves the green channel for the registration and use of such pesticides. In the pesticide research and development process, the government has increased R&D investment, actively promoted collaboration between scientific research institutions, schools, and pesticide enterprises, provided technical support, value-added tax relief and research and development subsidies to biological pesticide and green pesticide manufacturing companies, and subsidized the use of biological pesticides and green pesticides. In the pesticide sales and use process, the government has implemented pesticide business license management and set new requirements for the use of pesticides and the recycling and disposal of packaging waste, and the food supervision department has continuously improved the pesticide residue detection system. All these require the pesticide manufacturing industry to actively adjust the variety structure of pesticides, accelerate the upgrading of pesticide products, and promote technological progress and industrial upgrading.

However, are China’s environmental regulations effective in promoting technological progress in the pesticide manufacturing industry? Scholars have conducted numerous studies on whether environmental regulations can promote technological progress. But the conclusions of existing studies have not yielded consistent results.

Under the neoclassical assumption, traditional views believe that environmental regulation is not conducive to the improvement of enterprise productivity [9,10]. Some scholars believe that environmental regulation will have a “crowding-out effect” on enterprise technological innovation, increasing the compliance costs of enterprises, squeezing production and operation costs as well as R&D funds. As a result, it will impede technological progress, reduce the competitiveness of enterprises, and lead to a decrease in green innovation output [11]. This is known as the “compliance cost effect” of environmental regulation. However, Porter (1991) and Porter et al. (1995) suggest that this impact is only short-term. In the long run, environmental regulation will promote the innovative behavior of enterprises, thereby enhancing productivity [12,13]. Moreover, Porter et al. (1995) believe that this innovative behavior is not narrowly defined as the innovation in end-of-pipe pollution control but rather the spontaneous and broad-based innovative behavior of enterprises [13]. This is the “innovation compensation effect” of environmental regulations. Jaffe et al. (1997) further categorized Porter’s hypothesis into three levels: the weak version, the narrow version, and the strong version. The “weak” version suggests that environmental regulations will incentivize corporate innovation; the “narrow” version posits that flexible environmental regulations provide greater innovation incentives than normative regulations; and the “strong” version believes that environmental regulations can help enhance the competitiveness of enterprises [14].

Afterwards, scholars explored the relationship between environmental regulations and technological progress from different perspectives. Summarizing the existing studies, there are three types of viewpoints: a positive relationship, negative relationship, and non-linear relationship.

Firstly, environmental regulation is posited to promote technological innovation. Jaffe et al. (1997) found that the intensity of environmental regulations promotes research and development expenditure, but the impact on patent applications is not significant [14]. Xu et al. (2012) found that the pollution tax rate and the price of pollution discharge were conducive to fostering the green technology-related behaviors of enterprises [15]. Xiong et al. (2020) found that both the two types of environmental regulations have promoted technological innovation in enterprises [16]. Zhu et al. (2022) found that command-and-control environmental regulation is conducive to increasing environmental protection investment by politically connected enterprises [17]. Shen et al. (2017) found that the market-incentive environmental regulation is more effective than command-and-control environmental regulation in promoting production technology or green productivity improvement [18]. Pan et al. (2022) found that public environmental attention has significantly promoted enterprise green investment efficiency [19].

Secondly, it is contended that environmental regulation impedes technological innovation. Some scholars opine that environmental regulation fails to propel innovation. Ye et al. (2018) believed that the negative effect of the market-incentive environmental regulation is more pronounced in the central and eastern regions [20]. Du et al. (2022) found that the increasing intensity of government environmental regulation will inhibit green investments of heavily polluting enterprises [21].

Thirdly, the impact of environmental regulation on technological innovation is regarded as non-linear. Jiang et al. (2013) found that there is a U-shaped relationship between environmental regulations and corporate R&D [22]. Dong et al. (2019) found that environmental regulation exerted a typical U-shaped influence on local green technological progress [23]. Conversely, You et al. (2022) posited that the impact of environmental regulation on enterprises’ green technological innovation exhibited the characteristics of being initially positive and subsequently negative, and the government thus needs to formulate an appropriate environmental regulation strategy, as an overly high intensity of environmental regulation will escalate enterprise costs and dampen their enthusiasm for green innovation [24].

The reason for the above different conclusions may be due to the different selections of environmental regulation indicators in existing studies and the heterogeneity of the research industries. On the one hand, environmental regulations have multi-dimensional characteristics [25], and a single indicator is difficult to comprehensively measure the environmental regulation intensity. On the other hand, there are significant differences in pollution emissions, technological composition, and responses to environmental regulations among different industries.

At present, scholars tend to improve the research on the relationship between environmental regulation and technological innovation from two aspects. On the one hand, they use comprehensive environmental regulation indicators with classified and multiple indices instead of single indicators to deeply explore the differential effects of different types of environmental regulation and regional differences. Environmental regulation can be divided into command-and-control environmental regulation, market–incentive environmental regulation, and public-participation environmental regulation, and different types of environmental regulation vary in the policy tools that they use and the impact mechanisms. It is difficult for a single indicator to comprehensively measure environmental regulation. Therefore, more and more scholars classify environmental regulation tools and use comprehensive environmental regulation indicators with classified and multiple indices to measure the intensity of environmental regulation more comprehensively and accurately, exploring the differential effects of heterogeneous environmental regulation. Furthermore, considering the differences in the development of environmental regulation policies in different regions, some scholars have further explored the regional differences in the technological innovation effects of heterogeneous environmental regulation. On the other hand, they subdivide the research objects. Some scholars have noticed that there are huge differences among different pollution entities in terms of pollution emissions, technological composition, and industrial cycles, and their responses to environmental policies also vary. Subdividing the research objects according to industry, characteristics of pollution entities, types of pollutants, etc., is conducive to obtaining more targeted conclusions. Some scholars have classified industries according to the degree of pollution [26], the degree of competition [27], etc., to explore the impact of environmental regulation on technological progress.

However, there is no study that has employed comprehensive environmental regulation indicators, which are composed of classified and multiple indices, to investigate the impact of environmental regulation on the technological progress of the pesticide manufacturing industry.

Therefore, it is necessary to research the impact of environmental regulations on the technological progress of the pesticide manufacturing industry by using different types and multiple indicators of environmental regulations.

This study will construct command-and-control environmental regulation and market-incentive environmental regulation by using multiple indicators to analyze the impact of environmental regulations currently in place in China on the technological progress of the pesticide manufacturing industry. Are the environmental regulations able to promote technological progress in the pesticide manufacturing industry? And are there differences between different environmental regulation types and among different regions of China? This study suggests important policy implications for exploring effective environmental regulation policies, finding effective ways to transform the development mode of China’s pesticide manufacturing industry and reduce pesticide use intensity, constructing a low-carbon and safe agricultural material system, and promoting green agricultural development.

The contribution of this study is to construct two types of environmental regulations by using multiple indicators, command-and-control environmental regulation, and market-incentive environmental regulation, and to analyze the mechanism of environmental regulations on technological progress of the pesticide manufacturing industry based on patent data, enriching the existing studies on the impact of environmental regulations on technological progress.

2. Theoretical Analysis: Impact of Environmental Regulations on Technological Progress of the Pesticide Manufacturing Industry

Existing research generally believes that environmental regulations have a dual effect on technological progress, namely, a negative “compliance cost effect” and a positive “innovation compensation effect”.

On the one hand, environmental regulations may have a negative “compliance cost effect” on technological progress of the pesticide manufacturing industry. The government adopts strict environmental regulation policies to limit the emissions of pollution. It requires enterprises to implement strict environmental regulation measures or improve pollution control technologies to reduce pollution emissions, which will increase the cost of pollution control. In addition, the government levies a pollution tax, implements strict registration and approval systems for pesticides, and prohibits the production of highly polluting pesticides, which will, to some extent, increase the management costs of the pesticide manufacturing industry and squeeze out R&D investment.

On the other hand, environmental regulations may have a positive “innovation compensation effect” on the technological progress of the pesticide manufacturing industry through the following five paths:

(1) Environmental regulations promote technological progress by adjusting the layout of the pesticide manufacturing industry. To address the current issues of numerous, small, and scattered pesticide enterprises, as well as overcapacity and an unreasonable variety structure, the government has eliminated small and scattered pesticide enterprises and encouraged mergers and reorganizations among pesticide enterprises. The expansion of the enterprise scale is conducive to achieving economies of scale and reducing the R&D investment per unit of innovative output. At the same time, the government has raised the technical requirements for new entrants to the pesticide industry and facilitated the entry of chemical pesticide enterprises into chemical industrial parks, promoting the intensification of pesticide production. The increase in the number of enterprises in industrial parks can not only refine the division of labor in the industrial chain and improve factor productivity but also improve infrastructure utilization, reduce R&D costs, and enhance green technology innovation performance by jointly building and sharing R&D infrastructure [28]. At the same time, it also intensifies competition among enterprises in the same chemical industrial parks. In order to gain a competitive advantage, enterprises are forced to engage in technological innovation. Industrial parks can simultaneously reduce the search cost for enterprises seeking innovation cooperation, as well as the increased risks and uncertainties in the process of collaborative innovation, providing great convenience for cooperation among various innovation entities in the innovation chain and having a positive impact on improving innovation performance [29].

(2) Environmental regulations promote technological progress by adjusting the types of pesticide products. The government actively promotes supply-side reforms in pesticides, proposes to accelerate the upgrading of pesticide products, eliminates and bans old pesticide types with high toxicity, high risk, and high resistance, provides research and development support for efficient, low-toxicity, and low-residue pesticides and biopesticides, implements strict registration and approval systems for new pesticides, improves the green channel for pesticide registration and approval, and creates a favorable environment for the registration and use of biological pesticides, or high-toxicity pesticide substitutes. This will encourage pesticide enterprises to develop new pesticide products and promote technological progress. According to the recent pesticide registration data, the structure of pesticide products in China has undergone significant changes. Low-risk biopesticides have steadily increased in production, sales, and use, and environmentally friendly formulations have rapidly increased. The structure of pesticide products is developing in a direction that is beneficial to human and animal health and ecological environment safety. The gradual optimization of pesticide product structure and the orderly withdrawal of highly toxic pesticides have made efficient, low-toxicity, and low-residue pesticide products a key focus and mainstream trend in industry research and development.

(3) Environmental regulations promote technological progress by promoting the improvement of pesticide production processes. Pesticide products are not only the main source of agricultural non-point source pollution, but their production processes also generate serious air pollution, water pollution, heavy metal pollution, and solid waste pollution. The government has issued environmental protection laws and regulations, implemented stricter supervision, and imposed pollution taxes and other policies, which have put forward new assessment indicators for pesticide enterprises. They are required to transform their production methods, eliminate backward production capacity, and achieve clean production.

The improvement of environmental regulations is equivalent to the mandatory “cleaning” of enterprises in the market, eliminating those with outdated production technologies or high pollution and energy consumption. Controlling the generation and emission of pollution from the source has a positive impact on improving the performance of green technology innovation [30]. The market-incentive environmental regulations, such as environmental taxes, reflect environmental costs through market mechanisms and price signals, which are conducive to avoiding the phenomenon of excessive emissions of pollutants and the excessive consumption of resources due to distorted resource prices and low usage costs [31]. The environmental regulation forces enterprises to change their development mode and increase the research and development of green technologies, shifting from relying on energy to relying on green technologies, human capital, which is conducive to promoting the technological progress of the pesticide manufacturing industry.

(4) Environmental regulations promote technological progress by increasing research and R&D investment. The government has increased its R&D investment, actively promoted collaboration between scientific research institutions, schools, and pesticide enterprises, and provided technical support, value-added tax relief, and R&D subsidies for green pesticide manufacturing companies, such as biological pesticides and subsidies for the use of biological pesticides and green pesticides. Government subsidies for enterprises not only provide financial support but also help them transmit relevant signals, verify their development capabilities and prospects, and, to some extent, solve the problem of information asymmetry. This is beneficial for enterprises to obtain external financing, alleviate the financing constraints faced by enterprises in green technology research, and reduce the cost of green technology innovation [32], which is conducive to encouraging pesticide enterprises to increase innovation investment and promote technological progress of the pesticide manufacturing industry.

(5) Environmental regulations promote technological progress of the pesticide manufacturing industry through pesticide market management. In recent years, China has strengthened its management of the pesticide market. The government has implemented the pesticide sales license system, investigated the production and sale of counterfeit pesticides, put forward new requirements for the use of pesticides and the recycling of packaging waste, improved the pesticide residue detection system, and strengthened the supervision of green agricultural products. All these policies will drive pesticide companies to actively adjust the pesticide products for market share and revenue, accelerate the upgrading of pesticide products, and promote technological progress of the pesticide manufacturing industry.

In summary, whether environmental regulations can promote technological progress of the pesticide manufacturing industry depends on the interaction between the “compliance cost effect” and the “ innovation compensation effect”. When the “innovation compensation effect” is greater than the “compliance cost effect”, environmental regulations will promote technological progress of the pesticide manufacturing industry; otherwise, they will inhibit or even damage technological progress of the pesticide manufacturing industry. In recent years, China has continuously increased its regulation of pesticide reduction and the pesticide industry, taking various measures to promote the green upgrading of the pesticide industry. The layout and product structure of the pesticide industry have been optimized, production processes have been continuously updated, and the management of the pesticide market has improved significantly. The pesticide industry is developing towards a green and safe direction. Therefore, this study suggests that the “innovation compensation effect” of environmental regulations on the pesticide manufacturing industry should be greater than the “compliance cost effect”, and environmental regulations are conducive to promoting technological progress of the pesticide manufacturing industry. Therefore, this study proposes research hypothesis 1:

Hypothesis 1 (H1). 

Environmental regulations can effectively promote technological progress in the pesticide manufacturing industry.

3. Econometric Model and Date

3.1. Econometric Model

This study mainly investigates the impact of environmental regulations on technological progress of the pesticide manufacturing industry. Based on the existing studies and the panel data of 30 provinces in China from 2004 to 2020, this study constructs an econometric model for the influencing factors of technological progress in the pesticide manufacturing industry. This study adopts the System Generalized Moment Method (SYS-GMM). The implementation of environmental regulations generally has a lagging effect, and the technological innovation in pesticide manufacturing is a long-term and continuous process, and there may also be path dependence in technological innovation. Ruttan (1997) believed that the direction of technological progress depends on past accumulations, and the currently prevailing technologies and knowledge will also affect future technological choices [33]. Therefore, the empirical research needs to be carried out under the dynamic panel data structure. In this paper, the lagged term of technological progress is set as an explanatory variable in the model specification. When conducting empirical regression, the System Generalized Method of Moments (SYS-GMM) of dynamic panel data is adopted. By using the lagged term of the explained variable as an instrumental variable, it can more effectively address the issues of dynamic panel bias and endogeneity. The econometric model is set as follows:

$${th}_{it} = {\alpha }_i + {\eta th}_{it-1} + c{er}_{it} + \beta C_{it} + u_i{ + v}_i + {\epsilon }_{it}$$

(1)

In Formula (1), $i$ represents the province, and $t$ represents the time. The explained variable ${th}_{it}$ represents the variable of technological progress of the pesticide manufacturing industry, which is measured by the number of invention patent applications (App) and invention patent authorization (Dis) of the pesticide manufacturing industry. Pesticide manufacturing industry invention patents are important outputs of pesticide companies’ product research and innovation. High-quality invention patent technology can achieve production process innovation, pesticide product innovation, and disease and pest control technology upgrades through technological application. Finally, it can improve the prevention and control effect, labor productivity, and agricultural product quality, reduce pesticide use intensity, and achieve high-quality economic development and ecological environmental protection. To ensure the sample size, referring to the method of Xu et al. (2024) [34], the number of patents is increased by 1.

The key explanatory variable is ${er}_{it}$, which represents the intensity of environmental regulations. Due to the multi-dimensional characteristics of environmental regulations [25] and to reflect the intensity of environmental regulations comprehensively and accurately, referring to existing studies, this study constructs a multiple indicator system of environmental regulations from two aspects: command-and-control environmental regulation ${er}_1$ and market-incentive environmental regulation ${er}_2$. The indicators of command-and-control environmental regulation include the number of currently effective pesticide environmental laws, the number of currently effective pesticide administrative regulations, and the number of currently effective pesticide normative documents [35]. The indicators of economic-incentive environmental regulation include the investment in the treatment of industrial pollution (CNY 10,000) and the environmental protection tax (pollutant discharge fee) (CNY 10,000) [36], as shown in

Table 1. Environmental regulation indicators.

Environmental Regulation Category	Indicators
command-and-control environmental regulation ${er}_1$	(1) The number of currently effective pesticide environmental laws (2) The number of currently effective pesticide administrative regulations (3) The number of currently effective pesticide normative documents
market-incentive environmental regulation ${er}_2$	(1) Investment in the treatment of industrial pollution (CNY 10,000) (2) Environmental protection tax (pollutant discharge fee) (CNY 10,000)

. The entropy method is used to construct comprehensive indicators of environmental regulations.

${th}_{it-1}$ is the first-order lag of the technological progress variable, representing the impact of previous technological progress on the current period.

$C_{it}$ is the control variable, including the following: (1) economic development level (gross domestic product, GDP), measured by per capita real GDP [37]; (2) industrial structure (I), measured by the proportion of industrial added value in GDP (%) [16,37]; (3) planting structure (P), measured by the proportion of non-grain crop sown area in total sown area (%); (4) foreign investment (F), measured by the ratio of foreign direct investment to GDP [16,37].

$u_i$ and $v_i$ represent regional fixed effects and time fixed effects, respectively, and ${\epsilon }_{it}$ is a random perturbation term. At the same time, except for environmental regulation variables, the model takes a logarithm of the variables to eliminate the heteroscedasticity of data.

3.2. Data

Due to data availability, this study selected 30 provinces in China (excluding Tibet, Hong Kong, Macao, and Taiwan) between 2004 and 2020 as samples. The data of the number of currently effective pesticide environmental laws, the number of currently effective pesticide administrative regulations, and the number of currently effective pesticide normative documents were sourced from the Chinese Legal Retrieval System of the Law School of Peking University—“PKULAW” (https://www.pkulaw.com/) and the Chinese Legal Digital Library of China National Knowledge Infrastructure (https://lawnew.cnki.net/kns/brief/result.aspx?dbPrefix=CLKLP) (accessed 6 March 2023). The data of investment in the treatment of industrial pollution, per capita GDP, industrial added value, the GDP of each province, non-grain crop sown area, and foreign direct investment were sourced from the website of the National Bureau of Statistics. The data on environmental protection tax (pollutant discharge fee) were sourced from “China Environmental Yearbook” and “Finance Yearbook of China”. The patent data of pesticide manufacturing industry come from the patent database of Zhihuiya (Suzhou, China) Co., Ltd. (https://analytics.zhihuiya.com/). Based on the “Classification of National Economic Industries in 2017” (referred to as the GBC industry classification) standard (GB/T4754-2017) announced by the National Bureau of Statistics [38]. the manufacturing of chemical pesticides (2631) and the manufacturing of biochemical pesticides and microbial pesticides (2632) under the pesticide manufacturing industry (263) were selected for the collection of patent data. The sample description analysis is shown in

Table 2. Basic statistics of variables.

Variables	Description	Mean	Standard Deviation	Min	Max
App	number of invention patent applications	95.784	172.39	0	1295
Dis	number of invention patent authorizations	27.161	38.396	0	314
er	environmental regulations	0.154	0.126	0	0.597
er1	command-and-control environmental regulation	0.121	0.109	0	0.554
er2	market-incentive environmental regulation	0.033	0.028	0	0.157
GDP	per capita real GDP (CNY 10,000)	2.873	2.212	0.424	13.784
I	proportion of industrial added value in GDP (%)	0.359	0.086	0.100	0.574
P	proportion of non-grain crops sown area in total sown area (%)	0.341	0.136	0.029	0.645
F	ratio of foreign direct investment to GDP (%)	0.509	1.571	0.048	34.014

.

4. Empirical Results

4.1. Basic Regression Result

This section shows the impact of the environmental regulations on technological progress of the pesticide manufacturing industry.

Table 3. Impact of the environmental regulations on technological progress of the pesticide manufacturing industry.

	(1)	(2)
	Invention Patent Application Model	Invention Patent Authorization Model
environmental regulations	0.0341 **	0.0808 ***
	(0.0170)	(0.0255)
economic development level	−0.00155	0.0317
	(0.0609)	(0.0902)
industrial structure	0.103	0.0499
	(0.0927)	(0.146)
planting structure	0.0440 *	0.0458
	(0.0246)	(0.0364)
foreign investment	0.0478	0.0544
	(0.0359)	(0.0473)
first-order lagged terms of	0.883 ***
invention patent application	(0.0192)
first-order lagged terms of		0.804 ***
invention patent authorization		(0.0336)
constant	0.729	0.663
	(0.675)	(1.149)
AR (1)	0.003	0
AR (2)	0.814	0.094
Sargan test	0.987	0.762
number of id	30	30
observations	510	510

Note: Standard errors in parentheses. *, ** and *** are significant at the level of 10%, 5% and 1%, respectively.

shows the results of the model. In the SYS-GMM model, AR (1) represents the first-order autocorrelation of the perturbation term, with a p-value less than 0.1, indicating the existence of autocorrelation in the first-order difference in the perturbation term. AR (2) represents the second-order autocorrelation of the perturbation term, with a p-value greater than 0.1, indicating that there is no autocorrelation in the second-order difference in the perturbation term. These two tests are conducted to ensure the effectiveness of the system GMM estimation and prevent bias caused by incorrect model settings. If the p-value of AR (1) is less than 0.1 and the p-value of AR (2) is greater than 0.1, it indicates that the model setting is reasonable and the estimation results are reliable. In Table 3, the AR (1) value is less than 0.05, while the AR (2) value is greater than 0.05, indicating the existence of first-order autocorrelation and the absence of second-order autocorrelation. The Sargan test value is greater than 0.05, indicating that the selection of instrumental variables is effective and the model estimation effect is good. The coefficients of first-order lagged terms of patent application and patent authorization are both significant at the 1% level, indicating that the current technological progress is affected by the previous period, which shows that the dynamic panel model is set correctly.

Table 3 shows that the coefficients of environmental regulations on the invention patent application and invention patent authorization of the pesticide manufacturing industry are 0.0341 and 0.0808, respectively, both significant at the 5% and 1% levels. This verifies the research hypothesis H1 that environmental regulations can effectively promote technological progress of the pesticide manufacturing industry, indicating that China’s environmental regulations have a significant positive “innovation compensation effect” on technological progress of the pesticide manufacturing industry. This is consistent with some existing research findings, like Xiong et al. in 2020 and Zhu et al. in 2022 [16,17]. The pesticide environmental regulations were adopted by the Chinese government, including optimizing the layout and product structure of the pesticide industry, improving pesticide production processes, supporting pesticide innovation, strengthening pesticide market management, actively promoting efficient, low-toxicity, low-residue pesticides, biopesticides, and green disease and pest control technologies, and promoting the green development and transformation of the pesticide industry, providing clear innovation directions for pesticide enterprises. These are conducive to reducing the technological innovation risks of pesticide enterprises and motivating them to increase their investment in technological innovation, thus verifying the “Porter hypothesis”.

In addition, the coefficient of the planting structure, which was measured by the proportion of the non-grain crop sown area in the total sown area, is 0.044, significant at the 10% level. The planting structure has a positive impact on technological progress of the pesticide manufacturing industry. Places where there is a high proportion of non-grain crops generally have high levels of economic development, research ability, and urbanization, which are conducive to technological innovation.

4.2. Robust Test

In order to verify the robustness of the model, this article conducts robustness tests, including an endogeneity test, modifying the sample, and eliminating the influence of the COVID-19 pandemic. The regression results are below.

4.2.1. Endogeneity Test

There may be an endogeneity problem between environmental regulation and the technological progress of pesticide manufacturing. The reasons are as follows: On the one hand, the government’s pesticide policies will affect the technological progress of the pesticide manufacturing, and the level of pesticide manufacturing may also influence the formulation of government pesticide policies. The government usually implements stricter supervision and inspection and provides more policy support for major pesticide-producing provinces. There may be an endogeneity problem of reciprocal causation. Therefore, this paper uses an instrumental variable model to deal with the endogeneity problem.

This paper uses the number of personnel in the environmental protection systems of each province as an instrumental variable for environmental regulation. Firstly, there is a strong correlation between the number of personnel in the environmental protection system and environmental regulation, because the implementation of government environmental regulation policies is inseparable from the staff, so there is a strong correlation between the number of personnel in the environmental protection system and environmental regulation. Secondly, the number of personnel in the environmental protection system has strong exogeneity with the technological progress of pesticide manufacturing. The number of personnel in the environmental protection system will not directly affect the technological progress of the pesticide manufacturing industry, and there is no reason to believe that the technological progress of the pesticide manufacturing industry will affect the number of personnel in the environmental protection system.

Therefore, the number of personnel in the environmental protection systems of each province meets the requirements of the assumptions of correlation and exogeneity. The number of personnel in the environmental protection systems is sourced from the website of the National Bureau of Statistics, and the data are also logarithmically processed. 2SLS regression is carried out, and the re-examined results show consistency with the original regression results (as shown in

Table 4. Robust test: Endogeneity test.

System GMM
	Patent Application		Patent Authorization
	First Stage	Second Stage	First Stage	Second Stage
IV variables	0.848 ***		0.848 ***
	(0.0959)		(0.0959)
Environmental regulations		1.777 ***		1.520 ***
		(0.229)		(0.195)
Control variables	Yes	Yes	Yes	Yes
Control time	Yes	Yes	Yes	Yes
Number of id	30	30	30	30
Observations	510	510	510	510
Kleibergen–Paap rk LM	48.337		48.337
Kleibergen–Paap rk Wald F	78.084		78.084

Note: Standard errors in parentheses. *** is significant at the level of 1%.

). Therefore, we can confirm that the research model that we established is relatively robust and that the empirical conclusions are reliable.

4.2.2. Modify the Sample

In order to verify the robustness of the results, the samples from the four municipalities of Beijing, Tianjin, Shanghai, and Chongqing were deleted by adjusting the samples.

Table 5. Robust test: Modify the sample.

System GMM
	Patent Application	Patent Authorization
Environmental regulations	0.0341 *	0.0935 ***
	(0.0174)	(0.0282)
Control variables	Yes	Yes
Control time	Yes	Yes
Constant	1.246	0.391
	(0.868)	(1.248)
AR (1)	0.003	0
AR (2)	0.904	0.064
Sargan test	0.963	0.357
Number of id	26	26
Observations	442	442

Note: Standard errors in parentheses. * and *** are significant at the level of 10% and 1%, respectively.

shows the robust test of modifying the sample. The results show that there are no significant differences in the results after deleting the samples of these municipalities, which is consistent with the previous research findings.

4.2.3. Eliminate the Influence of the COVID-19 Pandemic

Considering that the COVID-19 pandemic that emerged in 2019 had a certain impact on economic development, the implementation of pesticide environmental regulation, and the technological innovation of pesticide enterprises, the data for the years 2019 and 2020 were deleted, and a re-regression analysis was conducted.

Table 6. Robust test: Eliminate the influence of the COVID-19 pandemic.

System GMM
	Patent Application	Patent Authorization
Environmental regulations	0.0463 **	0.0979 ***
	(0.0202)	(0.0322)
Control variables	Yes	Yes
Control time	Yes	Yes
Constant	1.994 **	2.389
	(0.914)	(1.461)
AR (1)	0.004	0.001
AR (2)	0.785	0.063
Sargan test	0.984	0.848
Number of id	30	30
Observations	476	476

Note: Standard errors in parentheses. ** and *** are significant at the level of 5% and 1%, respectively.

shows the robust test. Through a comparison of the results, it can be observed that the significance of the estimated coefficient of environmental regulation on the technological progress of the pesticide manufacturing industry remains consistent. This indicates that the regression results presented in Table 3 are robust.

4.3. Mechanism Analysis

The preceding analysis reveals that the higher the intensity of environmental regulation, the more conducive it is to promoting the technological progress of pesticide manufacturing. But what is its underlying influence mechanism? Based on the theoretical analysis, environmental regulation in the pesticide industry can guide both the government and pesticide enterprises to increase investment in science, technology, and research and development (R&D), thereby increasing innovative output and promoting technological progress. Therefore, on the basis of the benchmark regression, this study further incorporates local fiscal investment in science and technology and the internal expenditure on research and development (R&D) as mediating variables to explore the influence mechanism through which environmental regulation impacts the technological progress of pesticide manufacturing. The data on local fiscal investment in science and technology are sourced from the “China Statistical Yearbook” for the years 2004–2020. Given that there was no distinct item for investment in science and technology in local fiscal expenditures from 2004 to 2006, the sum of the three scientific and technological expenses and the expenses for scientific undertakings in the local fiscal expenditures of those years was used as a substitute. The data on the internal expenditure of research and development (R&D) funds are obtained from the “China Science and Technology Statistical Yearbook” for the period 2004–2020. The results of the mechanism analysis are shown in

Table 7. Mechanism analysis.

System GMM
	Science and Technology Investment	Research and Development (R&D) Expenditure
Environmental regulations	0.0115 **	0.0114 *
	(0.00676)	(0.00638)
Control variables	Yes	Yes
Control time	Yes	Yes
Constant	−0.394	−0.0450
	(0.263)	(0.203)
AR (1)	0	0.001
AR (2)	0.212	0.505
Sargan test	0.218	0.751
Number of id	30	30
Observations	510	510

Note: Standard errors in parentheses. * and ** are significant at the level of 10% and 5%, respectively.

. The coefficients of environmental regulation on the mediating variables are both significantly positive. This observation implies that environmental regulation promotes the technological progress of the pesticide manufacturing industry by means of science and technology investment and research and development (R&D) serving as mediating variables.

4.4. Heterogeneity Analysis

Considering the characteristics of different types of samples, this paper further conducts classification tests from five aspects: types of environmental regulation, the level of economic development, the industrial structure, the planting structure and the region, so as to explore the heterogeneity in the impact of environmental regulation on the technological progress of the pesticide manufacturing industry across different sample categories.

4.4.1. Environmental Regulation Type Heterogeneity

Command-and-control environmental regulation and the market-incentive environmental regulation employ different instruments and may have different impacts on the technological progress of the pesticide manufacturing industry.

Command-and-control environmental regulation mainly relies on national regulations and policies, including shutting down technologically obsolete and highly polluting enterprises, prohibiting and restricting the production of highly toxic, high-residue, and high-risk pesticides, setting environmental standards, limiting pollutant emissions, compelling highly polluting enterprises to relocate, and encouraging pesticide companies to enter industrial parks. However, the instruments of command-and-control environmental regulation possess inherent characteristics such as high regulatory enforcement costs, substantial demands for human and material resources, low efficiency, and challenges in achieving dynamic supervision. To meet environmental standards, enterprises are obliged to phase out outdated production capacity, purchase environmental protection equipment, upgrade production processes, adjust product portfolios, and recruit technical personnel. These measures significantly increase the “compliance cost effect” for enterprises, thereby influencing the efficacy of command-and-control environmental regulation in promoting technological progress.

Market-incentive environmental regulation, based on the “polluter pays” principle, mainly utilizes tools such as environmental protection tax (pollutant discharge fee) and environmental investments to raise the pollution costs for enterprises. This may impose a “compliance cost effect” on the production and technological innovation of pesticide enterprises. Nevertheless, in comparison to command-and-control environmental regulation, market-incentive environmental regulation has less coercive power and greater flexibility. Enterprises can determine the pace and investment in pollution reduction and technological progress according to their specific situations. Market-incentive environmental regulation is particularly beneficial for pesticide enterprises with advanced emission reduction technologies, thus generating greater motivation for technological progress and realizing the “Porter effect”. However, the effective utilization of market-based environmental regulatory tools is constrained by several factors. For example, companies may conceal, underreport, or omit payment of the pollutant discharge fee. Moreover, determining the optimal environmental protection tax rate is difficult and requires continuous adjustment. A lower environmental protection tax rate barely stimulates technological innovation in enterprises. When the pollutant discharge fee level is low, the relative benefits of enterprises adopting green production technology are also low, causing them to postpone the advancement of clean technology.

Therefore, this study further investigates the heterogeneity between the command-and-control environmental regulation and the market-incentive environmental regulation.

Table 8. Environmental regulation type heterogeneity.

System GMM
	Invention Patent Application Model		Invention Patent Authorization Model
	Command-and- Control (1)	Market Incentive (2)	Command-and- Control (3)	Market Incentive (4)
command-and-control	0.0186 *		0.0326 **
environmental regulation	(0.0110)		(0.0133)
market-incentive		0.0931 **		0.155 ***
environmental regulation		(0.0374)		(0.0452)
control variables	Yes	Yes	Yes	Yes
control time	Yes	Yes	Yes	Yes
constant	0.676	1.391 **	0.451	1.407
	(0.655)	(0.691)	(0.960)	(0.923)
AR (1)	0.003	0.002	0	0
AR (2)	0.812	0.836	0.094	0.112
Sargan test	0.996	0.923	0.995	0.878
Number of id	30	30	30	30
Observations	510	510	510	510

Note: Standard errors in parentheses. *, ** and *** are significant at the level of 10%, 5% and 1%, respectively.

shows that the coefficients of command-and-control environmental regulation on invention patent application and invention patent authorization of the pesticide manufacturing industry are 0.0186 and 0.0326, respectively, both significant at the 10% and 5% levels, indicating that command-and-control environmental regulation can promote technological progress of the pesticide manufacturing industry. In recent years, the Chinese government has continuously strengthened the supervision and punishment of pesticide production and use. It has adopted administrative orders to eliminate small, disorderly, and scattered pesticide companies, promoted the entry of chemical pesticide companies into chemical parks, and promoted the intensification of pesticide production, which is conducive to achieving resource integration and technological upgrading in the pesticide industry. At the same time, the Chinese government eliminated highly toxic and high-risk pesticides, implemented a strict registration and approval system for new pesticides, continuously improved the pesticide residue detection system, and strengthened the supervision of green agricultural products. These environmental regulations are conducive to promoting pesticide research and technological progress.

The coefficients of market-incentive environmental regulation on invention patent application and invention patent authorization are 0.0931 and 0.155, respectively, both significant at the 5% and 1% levels, indicating that market-incentive environmental regulation also helps promote technological progress of the pesticide manufacturing industry. Due to the implementation of environmental regulations and pesticide reduction policies, pesticide enterprises are compelled to increase their investment in industrial pollution control, aiming to upgrade pollution prevention and control equipment and innovate production processes. In addition, by the end of 2015, all provinces in China had increased pollutant discharge fee standards. Enterprises that fail to meet environmental protection standards or utilize obsolete production processes are subject to a doubled pollutant discharge fee. The investments in pollution control and the imposition of pollutant discharge fees have exerted a positive “innovation compensation effect” on technological progress in the pesticide manufacturing industry.

The coefficient of market-incentive environmental regulation is much higher than that of command-and-control environmental regulation, which is consistent with the research findings of Shen’s research in 2017 [18], indicating that market-incentive environmental regulation policies are more effective, and the narrow version of Porter’s hypothesis has been validated in the pesticide manufacturing industry in China.

4.4.2. Level of Economic Development Heterogeneity

Considering that environmental regulation may have differential impacts on the technological progress of the pesticide manufacturing in regions with different levels of economic development, this paper divides the samples into regions with high economic development levels and regions with low economic development levels based on the average per capita GDP of each province in 2020 and then conducts regression analysis. The results are shown in

Table 9. Level of economic development heterogeneity.

System GMM
	High Economic Development Levels		Low Economic Development Levels
	Patent Application	Patent Authorization	Patent Application	Patent Authorization
environmental regulations	0.0839 ***	0.0456 *	0.141 ***	0.0843 **
	(0.0250)	(0.0254)	(0.0269)	(0.0368)
control variables	Yes	Yes	Yes	Yes
control time	Yes	Yes	Yes	Yes
constant	2.574 **	0.612	2.486 *	2.182 **
	(1.034)	(0.670)	(1.453)	(0.972)
AR (1)	0.032	0.009	0.049	0.001
AR (2)	0.742	0.795	0.136	0.164
Sargan test	0.712	0.982	0.944	0.865
number of id	10	20	10	20
observations	170	340	170	340

Note: Standard errors in parentheses. *, ** and *** are significant at the level of 10%, 5% and 1%, respectively.

. It is found that environmental regulation has a positive impact on the technological progress of pesticide manufacturing in both economically developed regions and regions with lagging economic development levels.

4.4.3. Industrial Structure Heterogeneity

In consideration of the disparities that exist in the industrial structures among different regions, environmental regulation may have diverse impacts on the technological progress of pesticide manufacturing among different regions. This paper divides the samples into industrially developed regions and industrially less-developed regions on the basis of the median value of the ratio of industrial added value to regional GDP for each province in 2020 and then conducts regression analysis. The results are shown in

Table 10. Industrial structure heterogeneity.

System GMM
	Regions with a Higher Proportion of Industry		Regions with a Lower Proportion of Industry
	Patent Application	Patent Authorization	Patent Application	Patent Authorization
environmental regulations	0.0613 **	0.0567 **	0.106 *	0.0941 **
	(0.0276)	(0.0250)	(0.0563)	(0.0417)
control variables	Yes	Yes	Yes	Yes
control time	Yes	Yes	Yes	Yes
constant	1.181	0.211	1.566	0.0559
	(0.772)	(0.609)	(1.173)	(1.028)
AR (1)	0.05	0.004	0.023	0.001
AR (2)	0.287	0.077	0.143	0.488
Sargan test	0.942	0.84	0.991	0.752
number of id	15	15	15	15
observations	255	255	255	255

Note: Standard errors in parentheses. * and ** are significant at the level of 10% and 5%, respectively.

. It is found that environmental regulation has a positive impact on the technological progress of pesticide manufacturing in both industrially developed regions and industrially less-developed regions.

4.4.4. Planting Structure Heterogeneity

Environmental regulation may have different impacts on the technological progress of pesticide manufacturing in regions with different planting structures. This paper divides the samples into regions with a high proportion of cash crop cultivation and regions with a low proportion of cash crop cultivation according to the average value of the proportion of cash crops in each province in 2020 and then conducts regression analysis. The results are shown in

Table 11. Planting structure heterogeneity.

System GMM
	Regions with a Higher Proportion of Cash Crop Planting		Regions with a Lower Proportion of Cash Crop Planting
	Patent Application	Patent Authorization	Patent Application	Patent Authorization
environmental regulations	0.0358 *	0.0866 ***	0.0529 *	0.128 **
	(0.0214)	(0.0293)	(0.0276)	(0.0552)
control variables	Yes	Yes	Yes	Yes
control time	Yes	Yes	Yes	Yes
constant	−0.304	3.226 ***	−0.645	3.666
	(0.638)	(1.100)	(0.916)	(2.288)
AR (1)	0.034	0.002	0.007	0.005
AR (2)	0.902	0.669	0.711	0.087
Sargan test	0.9	0.88	0.907	0.863
number of id	15	15	15	15
observations	225	225	225	225

Note: Standard errors in parentheses. *, ** and *** are significant at the level of 10%, 5% and 1%, respectively.

. It was discovered that environmental regulation has a positive impact on the technological progress of pesticide manufacturing in both regions with a relatively high proportion of cash crop planting and regions with a relatively low proportion of cash crop planting.

4.4.5. Regional Heterogeneity

Considering the heterogeneity in economic development and environmental regulations among different regions, this study further conducts regression analysis according to the eastern, central, and western regions of China.

As shown in

Table 12. Regional heterogeneity.

System GMM
	Eastern		Central		Western
	Patent Application	Patent Authorization	Patent Application	Patent Authorization	Patent Application	Patent Authorization
environmental regulations	0.330 **	0.255 *	0.0720 *	−0.266 *	0.147 **	0.103 *
	(0.158)	(0.153)	(0.0411)	(0.138)	(0.0701)	(0.0537)
control variables	Yes	Yes	Yes	Yes	Yes	Yes
control time	Yes	Yes	Yes	Yes	Yes	Yes
constant	−1.797	0.216	8.003	−19.98 ***	−0.266	2.973 **
	(3.323)	(1.031)	(5.118)	(7.405)	(2.388)	(1.270)
AR (1)	0.008	0.018	0.008	0.03	0.027	0.008
AR (2)	0.570	0.597	0.314	0.415	0.758	0.289
Sargan test	0.101	0.760	0.474	0.134	0.453	0.969
number of id	11	11	8	8	11	11
observations	187	187	136	136	187	187

Note: Standard errors in parentheses. *, ** and *** are significant at the level of 10%, 5% and 1%, respectively.

, the coefficients of environmental regulations on invention patent application and invention patent authorization of the pesticide manufacturing industry in the eastern region are 0.33 and 0.255, respectively, both significant at the 5% and 10% levels. The eastern region is the main production area of pesticides in China. The pesticide manufacturing industry in this region started relatively early, boasting a solid foundation in the chemical industry, a high level of operation and management, and a large number of pesticide enterprises. It also features a relatively high level of environmental regulation, a high level of economic development, and strong capabilities in pesticide scientific research. In addition, it is easier for it to obtain policy support and find innovative cooperation units with higher capabilities. It also has obvious resource advantages and stronger risk resistance. As a result, the probability of successful technological innovation is higher. In the context of strengthened environmental regulations, pesticide technology innovation can bring new competitive advantages to enterprises in the eastern region. Thus, environmental regulations are conducive to promoting technological progress of the pesticide manufacturing industry in this region.

The coefficient of environmental regulations on invention patent applications in the central region is 0.072, which is significant at the 10% level, indicating that environmental regulations have stimulated the enthusiasm for pesticide research and development in the central region, thereby being conductive to promoting technological progress to some extent and generating an “innovation compensation effect”. However, the coefficient of environmental regulations on invention patent authorization in the central region is −0.266, which is significant at the 5% level. This may be because invention patent authorization has high requirements for the quality, innovation, and environmental effects of patents. Due to the relatively slow development of the economy and education in the central region, enterprises there face significant difficulties in external financing and cooperating with well-qualified scientific research institutions. As a result, their technological innovation capabilities are relatively weak, and the quality of patents is comparatively low. At the same time, the strict environmental regulations have increased the production and operation costs of enterprises, squeezing out the R&D investment of high-quality and innovative technologies and blocking the technological progress, thus causing a “compliance cost effect”.

The coefficients of environmental regulations on invention patent application and invention patent authorization in the western region are 0.147 and 0.103, respectively, both significant at the 5% and 10% levels. Environmental regulations have significantly promoted the technological progress of the pesticide manufacturing industry in western regions. With the continuous implementation of pesticide environmental regulations and industrial policies in the eastern region, pesticide enterprises are relocating to the western regions where energy resources are relatively abundant, manufacturing is relatively weak, and environmental regulations are less stringent. Consequently, investment, production, and research and development in the pesticide industry are also relocating to the western region, thereby promoting the development and technological progress of the pesticide manufacturing industry in this region.

5. Conclusions and Policy Recommendation

5.1. Conclusions

Based on the panel data of 30 provinces in China between 2004 and 2020, this study explores the impact of environmental regulations on technological progress of pesticide manufacturing. The main conclusions are as follows:

(1) Environmental regulations have significantly promoted the technological progress of the pesticide manufacturing industry, verifying the “Porter hypothesis”. (2) The effect of market-incentive environmental regulation is better than that of the command-and-control environmental regulation, supporting the narrow version of Porter’s hypothesis. (3) Environmental regulations prompt the government to increase investment in science, technology, and research and development, thus promoting the technological progress of the pesticide manufacturing industry. (4) From regional analysis, the results of the eastern and western regions are consistent with the national result, while the central region shows heterogeneity. Environmental regulations have promoted the technological progress of the pesticide manufacturing industry in the eastern and western regions, generating an “innovation compensation effect”. However, there is a dual effect in the central region. On the one hand, environmental regulations have stimulated research for pesticide technologies, generating an “innovation compensation effect”. On the other hand, for the high-quality and innovative technologies, due to the relatively slow economic and scientific development in the central region, environmental regulations have squeezed out the R&D investment of high-quality and innovative technologies, resulting in a negative “compliance cost effect” and hindering technological progress to some extent.

5.2. Policy Recommendation

Environmental regulations are of great significance in promoting technological progress of the pesticide manufacturing industry. The Chinese government should continuously improve environmental regulations.

Firstly, the government should enhance the environmental supervision and management system for the pesticide manufacturing industry. In terms of formulating pesticide management policies, it is necessary to promptly update and revise regional pesticide environmental protection laws and regulations to enhance the operability of pesticide policy. The government should improve regulatory means and strengthen supervision over pesticide management and pesticide enterprises. Moreover, the Chinese government should comprehensively plan the development of the pesticide industry, increase policy support, and further optimize the production layout and industrial structure.

Secondly, the government should increase investments and subsidies for pesticide enterprises. The government should provide scientific research support and R&D subsidies to pesticide enterprises engaged in the R&D of low-toxic, low-residue pesticides, biopesticides, and green prevention and control technologies and promote cooperative innovation among industry-leading enterprises, universities, scientific research institutes, as well as large, medium and small enterprises, aiming to solve the key common technical problems in the industry and create a favorable environment for technological innovation.

Thirdly, the formulation and implementation of environmental regulations should take regional differences into account. The intensity of pesticide use in the eastern region is the highest, and the corresponding environmental regulation intensity is also the greatest, with the environmental regulation having the most remarkable effect. Therefore, it is necessary to continuously adhere to strict environmental regulation measures to promote technological progress in the pesticide manufacturing industry. At the same time, the eastern region should actively increase technical and scientific research support for the central and western regions. For the central region, the government should formulate and implement appropriate environmental regulations, enhance environmental supervision, and increase R&D subsidies for pesticide enterprises to promote the green development of the pesticide industry and accelerate the realization of the innovative compensation effect of environmental regulations. For the western region, the government should strengthen the introduction of talents, technology, and management methods. In addition, in the face of the trend of pesticide enterprises in Jiangsu, Zhejiang, and other places relocating to the western region, on the one hand, it is necessary to assist enterprises in solving difficulties in relocation and transfer. On the other hand, it should also meet the environmental protection requirements of the western regions and avoid environmental pollution while introducing technology.