How Urban-Level Credit Expansion Affects the Quality of Green Innovation: Evidence from China

Abstract

We take the economic stimulus package in China as a quasi-natural experiment to investigate the effect of urban credit expansion on the quality of green innovation at the city level. The analysis takes urban-level and firm-level data from 2004 to 2015 and adopts the PSM-DID approach. Our empirical results suggest that the implementation of credit expansion makes a significant contribution to the improvement of green patent quality. In addition, the mechanism suggests that urban credit expansion policies promote corporate green innovation through channels such as providing credit expansion and a lower cost of financing enterprise transformation and upgrading. This research also suggest that credit expansion promotes economic growth while also incentivising first-tier cities to engage in more green transformations and upgrade to improve the quality of green patents. Our findings also provide an important insight for the implementation of credit expansion policies and the achievement of sustainable development in countries around the world, particularly in developing countries. Finally, this paper argues that China’s credit expansion policy in 2009 has played a role in improving the quality of green innovation and improving green transformation.