Can the National Green Industrial Policy Improve Production Efficiency of Enterprises?—Evidence from China

Pei Liu, Wei-Chiao Huang and Hao Chen
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Pei Liu: School of Economics, Zhongnan University of Economics and Law, Wuhan 430073, China
Wei-Chiao Huang: Department of Economics, Western Michigan University, Kalamazoo, MI 49009, USA
Hao Chen: School of Economics, Zhongnan University of Economics and Law, Wuhan 430073, China

Sustainability, 2020, vol. 12, issue 17, 1-17

Abstract: This paper examines whether the national green industrial policy (GIP) can effectively optimize the enterprises’ structural transformation and upgrading, and improve production efficiency of enterprises. Using China’s firm-level data from 1998 to 2007, we take the 2003 “Cleaner Production Promotion Law of PRC” as the turning point of GIP implementation, and employ the difference-in-differences (DID) method to explore the policy effect on total factor productivity (TFP) of enterprises. The analysis shows that GIP can enhance the enterprise’s resource allocation capability and TFP growth. The implementation path of policy mainly relies on the compensation mechanism to incentivize innovation and the elimination mechanism of market selection. Specifically, GIP enhances TFP growth by accelerating the dynamic replacement (enterprise entry and exit) and elimination mechanism of the market, and by promoting innovative production to enhance the enterprise’s production efficiency. Further heterogeneity analysis reveals that state-owned enterprises are more susceptible to the influence of GIP, and GIP exerts more restrictive impact on high-pollution industries. Also, GIP has more significant net spillover effect on technology-intensive enterprises. The study provides a reliable factual basis for the market effect of GIP and the direction for green industry development.

Keywords: green industrial policy; total factor productivity; difference in differences; innovation compensation mechanism; market selection and elimination mechanism (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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