Abstract: Environmental regulation and green technology progress are important means to solve the negative externalities of the environmental pollution. Despite the widespread concern on the impact of environmental regulation on green technology progress, the existing literatures focus on the relationship between them mainly in the local parts of the same regions, lack of further convincing investigation from local-neighborhood perspective. Based on the spatial panel Durbin model, this paper examines the ripple effect of environmental regulation in different adjacencies by using the data of the provincial level in China, and further investigates the formation mechanism of ripple effect in local-neighborhood environmental regulation combined with the characteristic facts in regional industrial investment structure transformation. The results show that environmental regulation has a ripple effect, namely, environmental regulation can not only affect the green technology progress in the local regions but also change the innovation of green technology in the neighboring regions. Both of them show a U-shaped change characteristic. When subdividing industrial neighborhood from the economic neighborhood, the ripple effect of environmental regulation in geographical neighboring or industrial neighboring regions is significant, but this ripple effect in the pure economic neighboring regions is not significant. The ripple effect of geographic neighboring environmental regulation in neighboring overlapping areas is significantly strengthened. Given two regions with close industries distance, the closer the geographical distance is, the more ripple effect of environmental regulation will present. Environmental regulation will restrain the green technology innovation of neighboring regions by increasing investment in polluting industries in the neighboring regions, but the income growth effect of industrial transfer will not enhance the green innovation capacity in the neighboring regions and will deteriorate permanently.

Keywords: Environmental regulation; Green technology innovation; Ripple effect; Geographical neighborhood; Economic neighborhood; Industrial neighborhood