Abstract: Technological Innovation is an effective path to coordinate environmental regulation and industrial performance in industrial sector. The divergence exists about relation between environmental regulation and technological innovation, which need to be further testified in theoretical and empirical aspect. This paper constructs a mathematical model of environmental regulation and technological regulation in industrial sector based on different motivation of heterogeneous sector, and tests empirically the effect of environmental regulation on technological innovation using panel data of 35 industrial sectors from 2003 until 2012. The findings are that it is a “U” relationship between environmental regulation and technological innovation. That is to say, the weaker environmental regulation intensity will hinder technological innovation, and after the intensity reaches to the inflection point of “U” relationship, the environmental regulation will promote technological innovation. The inflection point of “U” relationship in pollution sector comes later than that of clean sector, and technological innovation of pollution sector responses slowly to environmental regulation. Now environmental regulation of the two sectors is staying on the left of inflection point. Therefore, the government should increase the intensity of environmental regulation appropriately, establish different environmental regulation policies towards different industrial sectors, and then promote technological innovation in industrial sector effectively.

Key words: environmental regulation, industrial sector, technological innovation, “U”-shaped curve, heterogeneous sector