Green credit regulation, induced R&D and green productivity: Revisiting the Porter Hypothesis

This paper investigates the causal effect of green credit regulation policy on green productivity and revisits the Porter hypothesis. By separating R&D into environmentally induced R&D and production R&D, we find that green credit regulation policy significantly improves green total factor productivity (GTFP) growth rather than input-output TFP. We further show that environmentally induced R&D is the driver of GTFP, while production R&D significantly improves the input-output TFP. Finally, our estimations indicate that internal financing intermediation is used to finance environmental R&D projects due to the high cost of environmental innovation.

Automated summary

This study reveals that the green credit regulation policy significantly enhances green total factor productivity (GTFP) growth, particularly through fostering environmentally induced R&D. Additionally, production R&D also contributes to the improvement of input-output TFP.