Abstract: On the basis of a panel dataset of two-digit industry during the period 2003-2010 in China, this paper adopts a two-step approach to analyze the links between environmental regulation, technological innovation and industrial economic performance. Empirical results show that environmental regulation is positively related to technological innovation, implying that current strong environmental protection can induce enterprise to implement more technological innovation. However, environmentally induced innovation effect is not sufficient to promote industrial economic performance. Furthermore, environmental regulation has different impact on different industrial economic performance indicators. This finding doesn’t support Porter hypothesis that more stringent environmental regulation can trigger innovation that may partially more than fully offset the costs of complying with them and enhance industrial economic performance in China. At last, some suggestions are provided.

Key words: environmental regulation, technological innovation, economic performance, Porter hypothesis