Analyzing the influence of regulatory capture on environmental efficiency within institutional frameworks

Farooq Muhammad Sabil ^1* NAZIA FEROZE ² CHENG TONGSHUN ² FAISAL FEROZE ³

• ¹ Qilu Institute of Technology (QIT), Jinan, China
• ² Nankai University, Tianjin, China
• ³ The University of Sydney, Darlington, New South Wales, Australia

Examining the causes for regulatory capture that leads to environmental inefficiency is crucial for promoting the sustainable growth of China's economy. The practical initiatives to improve environmental efficiency in many situations are inherently connected to the institutional framework on which they rely. This study analyzes the mechanism of regulatory capture affecting regional environmental efficiency within the context of the institutional environment from a theoretical perspective. This study empirically investigates the impact of regulatory capture on environmental efficiency, employing extensive metrics from the SBM model and provincial-level panel data in China. It also examines the diverse implications of the institutional environment, including government quality and legal framework, on this relationship. The results demonstrate that regulatory capture significantly obstructs the improvement of regional environmental efficiency. The institutional context positively influences the impact of regulatory capture on environmental efficiency, hence alleviating the negative relationship between regulatory capture and environmental efficiency. The regulatory influence of legal frameworks is substantial in areas with poor government quality and a favorable legal environment, whereas local governments can play a more corrective role in regions marked by good government quality and an insufficient legal environment. The detrimental effect of regulatory capture on environmental efficiency will wane only when the institutional environment exceeds a certain critical level. Therefore, it is essential to acknowledge the distorting impact of regulatory capture on the regulatory constraint process, while effectively utilizing the regulatory functions of governmental quality and the legal framework to establish regulatory order and improve environmental efficiency, thus achieving a synergistic development that optimizes the institutional environment and promotes the regional green economy.