ABSTRACT This paper employs data from counties across China spanning from 2016 to 2022 to construct a continuous difference-in-differences model, examining the influence of China’s low interest rate environment on regional innovation. Our research reveals that such an environment notably enhances the advancement of regional innovation levels. Mechanism analysis elucidates that in a low interest rate scenario, the accessibility of bank credit expands, and the cost of resource allocation diminishes, thereby mitigating capital scarcity in the innovation sector and facilitating the reallocation of labor resources. Additionally, this environment attracts nascent enterprises and fosters local entrepreneurial propensity, ultimately advancing regional innovation. Heterogeneity analysis further substantiates that a low interest rate environment not only narrows the disparity in innovation among regions and optimizes the regional innovation landscape but also reduces the innovation gap within the eastern region, fostering coordinated regional development. Expansion analysis demonstrates that such an environment also contributes to achieving carbon emission reduction targets, effectively managing and controlling atmospheric fine particulate pollutants, and substantially improving regional air quality by elevating regional innovation levels. This study provides empirical support for constructing a high-quality regional innovation system in a low interest rate environment.
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