Environmental Regulation and Green Innovation -Testing Porter Hypothesis from the Financial Constraint Perspective

Abstract

Green innovation is the central pillar of green transformation of economic development. To boost green innovation, the stimulation of heavily polluting enterprises to increase green investment is essential. This paper investigates how the introduction of environmental regulations influence high polluting enterprises’ green investment and compares the different policy responses for enterprises with various degree of financial constraints. Our results suggest that the Chinese government could design customized environmental policies for different types of enterprises and modify these policies in time accordingly. In addition, the government should provide additional assistance for high polluting enterprises by providing environmental subsidies and tax reductions to strengthen incentives for green innovation.