The Polarization Effect and Mechanism of China's Green Finance Policy on Green Technology Innovation

The advancement of green technology innovation (GTI) is crucial for facilitating green development. China, the largest carbon-emitting economy, should prioritize the acceleration of GTI to augment global green economic growth and reduce carbon emissions. Green finance policy (GFP) is a common instrument for encouraging enterprises to develop GTI. This study, therefore, takes the pilot policy of China's Green Finance Reform and Innovation Pilot Zone as a "quasi-natural experiment" and uses the difference-in-differences method to explore the impact and mechanism of GFP on Chinese enterprises' GTI. Based on the empirical analysis using microdata from Chinese industrial enterprises from 2015 to 2021, the following conclusions can be drawn. First, GFP has a green innovation polarization effect. It facilitates the development of GTI in green enterprises while hindering the progress of GTI in polluting enterprises. Second, GFP enhances the GTI of green enterprises by promoting innovative behaviors and factor allocation optimization behaviors. However, GFP reduces the GTI of pollution enterprises by promoting non-innovative investments and reducing the efficiency of factor allocation optimization. Third, the combination of policies utilizing GFP, environmental subsidy, and R & D subsidy can effectively increase the GTI of polluting enterprises without compromising the GTI of green enterprises. This study offers empirical evidence and policy recommendations for establishing a green finance system in developing countries.