THE IMPACT OF ECONOMIC POLICY UNCERTAINTY ON CORPORATE GREEN INNOVATION: EVIDENCE FROM CHINA

Abstract

Ensuring green innovation is essential for companies striving to maintain competitiveness in the global market. This study examines the influence of Economic Policy Uncertainty (EPU) on green innovation activities among China’s A-share listed firms, with particular attention to the moderating effects of financial constraints, government subsidies, and central state ownership.  Utilising data from 2007 to 2022, the research incorporates firm-level measures of the China Economic Policy Uncertainty Index alongside green innovation data. A quantitative methodology is employed, applying Ordinary Least Squares (OLS) regression to panel data analysis. Contrary to previous studies suggesting that EPU inhibits green innovation, the findings indicate that EPU exerts a positive and significant impact on firms’ green innovation efforts. However, financial constraints diminish this effect, whereas government subsidies enhance it. Furthermore, central state-owned enterprises (SOEs) demonstrate a higher propensity to invest in green innovation compared to their non-central counterparts.  These findings have significant policy implications, providing insights for refining innovation policies. This study not only establishes a framework for fostering corporate green innovation but also offers practical recommendations to support sustainable development amid economic uncertainty.