The Effect of Trade Policy Uncertainty on Green Technology Innovation: Evidence from China’s Enterprises

Abstract

Promoting green technology innovation is essential for sustainable development and the transition to a low-carbon economy. Using data from listed manufacturing companies in China from 2000 to 2020, this paper takes the establishment of permanent normal trade relations with the United States after China’s accession to the WTO as a quasi-natural experiment and uses the difference-in-differences method to study the impact of the decline in trade policy uncertainty on firms’ green technology innovation. The results show the following: (1) Reduced trade policy uncertainty significantly enhances green technology innovation in firms. (2) Further research finds that the decline in trade policy uncertainty mainly promotes the level of the green technology innovation of firms by alleviating financing constraints faced by firms and intensifying market competition. (3) A heterogeneity analysis reveals that the impact is more pronounced in firms with lower capital intensity, higher growth, export firms, and firms exporting to the United States. This study offers micro-level empirical evidence from China on the economic outcomes of external trade policy changes from the perspective of firms’ green technology innovation and provides insights into how the government should respond to the risks of external trade frictions and improve firms’ sustainable development in the future.