Innovation and environmental total factor productivity in China: the moderating roles of economic policy uncertainty and marketization process.

Abstract

China's economic development practices are facing strict energy constraints and severe environmental pollution. Improvement of China's environmental total factor productivity (ETFP) through innovation is a major scientific focus of both policy-makers and academia. However, the boundary conditions where innovation affects ETFP are yet to be clarified. On this basis, the present study starts from two dimensions-policy context and market context, introduces economic policy uncertainty (EPU) and marketization process as moderating variables, and examines the impact mechanism of innovation on ETFP. The results show the following: (1) Innovation promotes ETFP. (2) Although EPU inhibits ETFP, it positively moderates the impact of innovation on ETFP. (3) The marketization process has an insignificant inhibitory effect on ETFP. Specifically, the development of product markets, the development of market intermediary organizations, and the legal system environment have a significant inhibitory effect on ETFP. In contrast, the marketization process positively moderates the impact of innovation on ETFP. (4) The impact of innovation on ETFP exhibits obvious regional heterogeneity. In regions with low pollution intensity, innovation and EPU promotes ETFP. The marketization process inhibits ETFP and shows a positive moderating effect. In regions with high pollution intensity, both innovation and EPU inhibits ETFP. Based on these conclusions, policy-makers should guide companies to increase investment in research and development, improve innovation capabilities, and focus on strengthening energy-saving and environmental protection technologies and process innovations. When formulating and adjusting economic policies, policy-makers should aim promote enterprise innovation and reduce the negative impact of economic policy uncertainty. Policies should fully utilize the decisive role of the market in the allocation of innovative factors and rely on market mechanisms to enhance the positive effect of innovation on regional ETFP.