Pro-market Reforms and Green Innovation in China: A Dynamic Institutional Perspective

Abstract

Do pro-market reforms facilitate firms to conduct green innovation or create hindrance to the adoption of such risky strategies? We seek to answer this question evaded by previous studies. Based on a dynamic institutional perspective, we uncover how scope of pro-market reforms (degree of market liberalization in a given year) and speed of pro-market reforms (rate of market liberalization achieved over time) affect firms’ green innovation subsidies and their subsequent conversion of such subsidies into green innovation output. Results from a sample of Chinese publicly listed firms from 2008 to 2018 indicate that scope and speed of pro-market reforms both facilitate firms to obtain more green innovation subsidies. The conversion of green innovation subsidies into green innovation output is positively moderated by scope of pro-market reforms, such that a greater scope of pro-market reforms enables firms to achieve higher green innovation output. However, this conversion is negatively moderated by speed of pro-market reforms, such that reform speeds exert an inverted U-shaped effect on green innovation output, implying that a gradual reform speed is most suitable for firms to achieve high green innovation output. These findings provide implications to the dynamic institutional perspective by explaining whether pro-market reforms serve as a facilitator of or a burden on firms’ green innovation in a major transitioning economy.