The impact of eco-innovation on environmental performance in different regional settings: new evidence from Chinese cities

Eco-innovation is crucial for pollutants emissions reduction and environmental improvement. However, little is known on how it functions in relation to different technology capabilities and regulations. Using economic and environmental information collected for 285 Chinese cities in the period of 2005–2017, this paper investigates how eco-innovation functions in different contexts. First, different from the existing literature that has mainly focused on direct eco-innovation, our study shows that indirect eco-innovation—spillovers from other regions—can have an even greater impact than direct eco-innovation. This demonstrates the importance of absorbing eco-innovation spillovers from other regions to reduce the amount of pollutants and strengthen environmental performance, in particular for regions without sufficient local R&D capabilities. Second, this study investigates how different kinds of environmental regulation can function differently in stimulating new eco-innovation, which stresses the importance of differentiated instruments in incentivizing firms to adopt eco-innovation and maximize their contributions to environmental performance. In addition, our study also emphasizes the role that cities’ financial development plays in influencing the connection among eco-innovation, different kinds of environmental regulation and environmental performance. An understanding of these mechanisms is critical for the government to improve eco-innovation activities accordingly and make policies that fit specific regional contexts.