Abstract
Firms’ green innovation is important for their sustainable development. Determinants of firms’ green innovation has been discussed by social scientists, among which, carbon trading is a significant perspective. However, the current literature has not obtained consistent findings on this issue, possibly because causality has been challenged by the issue of endogeneity. This is not conducive to efficient policy instruments from existing findings. Using the carbon trading pilots in China in 2011 and 16 as quasi-experiment, we constructed dataset of 9,998 listed companies from 2000-2021 to empirically test the effect of carbon trading pilots on firms' green innovation by using the staggered Difference-in-Differences (DID) method. The results show that carbon trading pilots increased the quantity of green innovation while had no effect on their quality, and remain robust after a series robustness tests. We also discuss the mechanism from the perspective of externalities. The paper thus highlights the necessity of piloting carbon trading and lowing externalities in fostering firms’ green innovation.
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