DIGITALIZATION, GREEN INNOVATION AND INDUSTRIAL UPGRADING: THE MODERATING ROLE OF ENVIRONMENTAL REGULATION IN CHINESE MANUFACTURING

Abstract

This study examines whether firm-level digitalisation promotes green innovation and whether this relationship becomes stronger in the presence of environmental regulation. Using an unbalanced panel comprising 2,356 Chinese manufacturing A-share firms and 16,786 firm-year observations covering 2014–2023, the study employs the System GMM estimator to capture the dynamic relationships between the variables. The results indicate a positive relationship between digitalisation and green patent applications, with the finding remaining robust when alternative patent measures and winsorised specifications are employed. Furthermore, the interaction between digitalisation and environmental regulation demonstrates a complementary effect, indicating that regulatory intervention strengthens the economic benefits associated with digitalisation by directing information, capital, and managerial resources towards cleaner forms of innovation. These findings offer relevant implications for industrial upgrading and green-transition policies in emerging economies.