Can energy saving policies drive firm innovation behaviors? - Evidence from China

As one of the regional regulatory measures, energy saving policies have already been utilized by major countries as an important tool to advance sustainable development and can directly influence firms’ decision-making. Based on the policy context that the Chinese government took energy consumption per unit GDP as a constraint indicator for the planning of economic and social development during the “11th Five-Year Plan” period, this paper employs a Probit model to analyze the effect of energy saving policies on firm innovation behaviors and its heterogeneity by combining regional-level macro data with micro data obtained from the World Bank's enterprise surveys for China. The research finds that: (1) The implementation of energy saving policies significantly inhibits firms’ innovation behaviors in the region, while the soft institutional environment plays a moderate role on the inhibitory effect; (2) there is a heterogeneity for the effect of energy saving policies on firm innovation behaviors in terms of industry attributes and the nature of ownership, and the inhibitory effect on innovation behaviors of energy-intensive firms and non-state-owned firms is stronger; (3) the effect of energy saving policies on different types of firm innovation behaviors is differentiated, firms are more likely to abandon “exploratory” innovation behaviors which enable them to shape their long-term competitiveness under the influence of energy saving policies.