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End-of-pipe control or source-clean innovation? The impact of green credit policy on the green directed technical change

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  • Liu, Bo

Abstract

With the growing global emphasis on sustainability, green credit has emerged as a critical policy tool to facilitate corporate green transformation. This study exploits the 2012 Green Credit Guidelines in China as a quasi-natural experiment and employs a difference-in-differences (DID) approach using data from listed firms to evaluate the policy’s effect on green innovation. The empirical results reveal four key findings. First, the green credit policy significantly promotes green innovation in industries under credit regulation. Second, the innovation effect exhibits a directed technical change toward end-of-pipe pollution control technologies. Third, stronger regional environmental regulation amplifies the innovation effect, yet does not alter the end-of-pipe orientation induced by green credit. Fourth, the policy does not crowd out non-green innovation but instead generates a leverage effect by increasing firms’ overall innovation investment. These findings highlight both the effectiveness and structural limitations of green credit as a financial instrument for sustainable development.

Suggested Citation

  • Liu, Bo, 2025. "End-of-pipe control or source-clean innovation? The impact of green credit policy on the green directed technical change," Finance Research Letters, Elsevier, vol. 85(PE).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pe:s1544612325015144
    DOI: 10.1016/j.frl.2025.108260
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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