How government green procurement incentivises corporate green innovation? Evidence from China

Supply-side policies for promoting green innovation face inherent limitations, underscoring the need for demand-side measures to drive firms toward higher-quality innovation. While prior research has focused largely on supply-side factors, evidence on the effects of government green procurement, particularly in emerging economies, remains scarce and inconclusive. This study addresses this gap by examining the impact of China’s government green procurement list through a quasi-natural experiment using the difference-in-differences method. The findings reveal that government green procurement enhances both the level and quality of contractors’ green innovation by alleviating financing constraints and raising environmental concerns among firms and the public. These benefits also extend throughout the supply chain. However, factors such as managerial short-sightedness and local governments’ economic growth objectives can undermine the policy’s effectiveness. To maximise government green procurement’s spillover effects on corporate green innovation, the policy framework must integrate well-balanced incentives and constraints.