Local environmental spending spillover effects on green innovation: evidence from cities in China

As the crucial force in achieving harmonious development of the economy and environment, green innovation has been extensively valued. Based on data from Chinese prefecture-level cities from 2007-2019, this research investigates the influence of environmental spending on green innovation, further examining the moderating effect of the urban research and development (R&D) environment. Employing the spatial econometric model, we discover that local environmental spending significantly boosts native green innovation, positively affecting green innovation in nearby cities. Meanwhile, environmental spending's green innovation effect for different city clusters presents heterogeneous characteristics. Additionally, the urban R&D environment significantly moderates the relationship between environmental spending and green innovation. With the improved urban R&D environment, the incentive effect of environmental spending on green innovation strengthens. Therefore, local governments should appropriately adjust environmental spending policies while also creating a favorable R&D environment, thus stimulating green innovation.