Regional integration and firm-level environmental performance

In the context of sustainable development, improving firm-level environmental performance is critical. However, the impact of regional integration on this performance remains intricate, as environmental outcomes vary significantly across different regions. This study explores how regional integration affects firm-level environmental performance, focusing on the role of relative environmental regulation. Using 130,727 industrial firm samples of 137 cities in 16 Chinese urban agglomerations from 2003 to 2009, this study measures firm-level environmental performance through the Kumbhakar-Lien-Hardaker Stochastic Frontier Analysis (KLH-SFA). Regional integration is quantified by a spatial division of labor index, and relative environmental regulation is assessed through a ratio of environmental governance intensity between core and peripheral cities. Results show regional integration positively influences environmental performance, but this effect is conditional on relative regulation. For core cities, the positive effect holds when relative regulation is below 1.464; beyond this, it turns negative. For peripheral cities, the threshold is 1.6. Relative regulation, local regulation stringency, and city size also independently boost environmental performance. Heterogeneity analyses reveal stronger effects for non-energy-intensive firms, non-state-owned enterprises, and in non-forming urban agglomerations. This study highlights that environmental gains from integration require coordinated intra-regional policies, emphasizing calibrated regulation to balance economic integration and sustainability.