The Impact of China’s Circular Economy Demonstration Policy on Urban Green Innovation Efficiency

Yanqiu Zhu (), Ming Zhang, Hongan Chen, Jun Ma and Fei Pan
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Yanqiu Zhu: School of Business, East China University of Science and Technology, Shanghai 200237, China
Ming Zhang: School of Economics and Management, Nanjing Agricultural University, Nanjing 210095, China
Hongan Chen: School of Business, East China University of Science and Technology, Shanghai 200237, China
Jun Ma: School of Management, Shanghai University, Shanghai 200444, China
Fei Pan: School of Management, University of Shanghai for Science and Technology, Shanghai 200093, China

Sustainability, 2025, vol. 17, issue 15, 1-20

Abstract: Green innovation is a critical driver of sustainable development, yet it often faces efficiency challenges in rapidly industrializing economies. This study investigates the effect of China’s Circular Economy Demonstration Policy (CEDP) on urban green innovation efficiency (GIE) using city-level panel data from 2010 to 2021. Employing a difference-in-differences (DID) approach, we find that CEDP significantly enhances GIE, with the policy effect becoming statistically significant after a three-year lag and accumulating over time. Robustness tests, including placebo analyses, alternative dependent variables, and propensity score matching, confirm the validity of the results. Mechanism analysis reveals that the policy improves green innovation primarily by reducing capital distortion, promoting market integration, and enhancing resource allocation efficiency. Further heterogeneity analyses show that the positive effects are stronger in central cities, capital cities, and eastern regions, reflecting the role of local economic and institutional conditions. The study concludes with policy implications emphasizing regionally tailored implementation, capacity building, and long-term commitment to maximize green innovation outcomes.

Keywords: Circular Economy Demonstration Policy; green innovation efficiency; capital distortion; market integration; resource allocation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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