Abstract
Regional integration is widely promoted as a path to greener urban agglomerations, but its firm-level environmental effect remains uncertain because integration can also lower the cost of pollution relocation. This study examines how the regulatory gap between core and peripheral cities conditions this effect in China. Using data on 130,727 industrial firms in 137 cities across 16 urban agglomerations, we estimate firm environmental performance with the Kumbhakar–Lien–Hardaker stochastic frontier approach. Regional integration is measured by a spatial division-of-labor index, while relative environmental regulation captures core–periphery regulatory disparity. The results show that regional integration improves firm environmental performance on average, but the effect weakens as the regulatory gap widens. In core cities, the positive effect turns negative when the relative regulation ratio exceeds 1.464. In peripheral cities, the threshold is 1.600, which means that core cities reach the turning point earlier. Robustness tests using alternative performance measures and a hierarchical linear model support this nonlinear pattern. Further analysis shows that the interaction mainly affects the time-varying component of environmental performance, indicating short-term firm adjustment. The threshold mechanism is more evident among non-state-owned firms and non-energy-intensive firms. It is also observed in developed and developing urban agglomerations, but not in forming ones. The findings suggest that integration supports cleaner firm performance only when regulatory gaps are controlled. Policy should use threshold-based regulatory monitoring and firm-level cross-city accountability to prevent pollution relocation.