Abstract
This paper examines the impact of China’s new environmental protection law on green innovation. Using a large sample of Chinese prefecture-level cities for the 2010–2016 period and the difference-in-differences (DID) methodology, we provide strong evidence that the new environmental protection law promotes green innovation. This finding is robust to a battery of sensitivity tests. The micromechanism analysis shows that the new environmental protection law can promote green innovation by imposing stricter financial constraints on enterprises in high-pollution industries and increasing their incentives for green innovation to meet green credit requirements. Further, we find that the impact of the new environmental protection law on green innovation is more prominent in prefecture-level cities with a lower level of banking competition and for prefecture-level cities with stronger intellectual property protection. Overall, these findings suggest that the new environmental protection law has played an important role in promoting green innovation in China. To improve the effect of the new environmental protection law on green innovation, the government can consider lowering banking competition and strengthening intellectual property protection.
Highlights
China has embraced rapid economic development in the past 40 years, the country faces serious environmental issues, causing great losses in resident health and economic benefits [1, 2]
We regress the dependent variable on the interaction term Treat × Post only. e coefficient on Treat×Post is positive and statistically significant at the 1% level, which preliminarily shows that the new environmental protection law promotes green innovation
We control for all variables, and the coefficient on Treat × Post is positive and statistically significant at the 1% level, supporting our hypothesis that the new environmental protection law has a positive effect on green innovation
Summary
China has embraced rapid economic development in the past 40 years, the country faces serious environmental issues, causing great losses in resident health and economic benefits [1, 2]. Our paper helps fill this gap by examining the impact of the new environmental protection law on green innovation in Chinese prefecture-level cities. We use the enactment of the new environmental protection law as an exogenous shock to examine the impact of government environmental regulation on green innovation. Our research examines the impact of the Chinese new environmental protection law on green innovation and finds that the stringency of environmental protection can promote green innovation, which can help policymakers and scholars to better understand the role of government regulation in green innovation. The new environmental protection law can promote green innovation by changing the old economic development model, expanding the penalties and support for enterprises’ different environmental behaviors, and increasing people’s demand for environmentally friendly products. Hypothesis. e new environmental protection law has a positive effect on green innovation
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