Payments for Watershed Services and corporate green innovation

Abstract

China is promoting Payments for Watershed Services (PWS) in increasing regions for water pollution mitigation. In this study, we provided empirical evidence on the influence of China's PWS programs on green innovation based on green patent data. Results show that PWS results in more R&D and green innovation at the corporate level. We attribute this to increased regulatory pressure on firms following PWS by providing evidence that firm-level environmental penalties are increased in upstream areas following PWS, and PWS's positive effect on R&D and green innovation is stronger in firms with more sewage discharge and environmental penalties. Moreover, firms that invested in wastewater treatment facilities may not increase as much green innovation as other firms after PWS. Furthermore, this positive effect is more pronounced among firms with more R&D staff, less financial constraints, lower market competition, and state-owned enterprises.