Environmental regulatory intensity and corporate green innovation: The role of local government competition

Pursuing the dual goals of economic development and environmental protection often intensifies horizontal competition among local governments, leading them to use environmental regulation as a strategic policy tool. Existing studies rarely consider such competitive interactions, which helps explain why similar environmental policies generate different regional outcomes for green innovation. This paper examines the impact of environmental regulation on corporate green innovation while incorporating intergovernmental competition. The results show that both “race-to-the-bottom” and “race-to-the-top” dynamics coexist, although the former dominates. Using an economic-distance spatial matrix, we find that “race-to-the-top” competition promotes corporate green innovation, whereas “race-to-the-bottom” inhibits it. These effects are particularly pronounced in northern regions, resource-based cities, and in non-heavy-polluting and non-high-tech industries. Mechanism analysis suggeststhat “race-to-the-top” increases firms’ environmental attention and stimulates innovation, while “race-to-the-bottom” weakens environmental constraints, reducing environmental attention and pollution-charge costs and ultimately discouraging green innovation.