IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i15p7037-d1716477.html

The Impact of China’s Circular Economy Demonstration Policy on Urban Green Innovation Efficiency

Author

Listed:
  • Yanqiu Zhu

    (School of Business, East China University of Science and Technology, Shanghai 200237, China)

  • Ming Zhang

    (School of Economics and Management, Nanjing Agricultural University, Nanjing 210095, China)

  • Hongan Chen

    (School of Business, East China University of Science and Technology, Shanghai 200237, China)

  • Jun Ma

    (School of Management, Shanghai University, Shanghai 200444, China)

  • Fei Pan

    (School of Management, University of Shanghai for Science and Technology, Shanghai 200093, China)

Abstract

Green innovation is a critical driver of sustainable development, yet it often faces efficiency challenges in rapidly industrializing economies. This study investigates the effect of China’s Circular Economy Demonstration Policy (CEDP) on urban green innovation efficiency (GIE) using city-level panel data from 2010 to 2021. Employing a difference-in-differences (DID) approach, we find that CEDP significantly enhances GIE, with the policy effect becoming statistically significant after a three-year lag and accumulating over time. Robustness tests, including placebo analyses, alternative dependent variables, and propensity score matching, confirm the validity of the results. Mechanism analysis reveals that the policy improves green innovation primarily by reducing capital distortion, promoting market integration, and enhancing resource allocation efficiency. Further heterogeneity analyses show that the positive effects are stronger in central cities, capital cities, and eastern regions, reflecting the role of local economic and institutional conditions. The study concludes with policy implications emphasizing regionally tailored implementation, capacity building, and long-term commitment to maximize green innovation outcomes.

Suggested Citation

  • Yanqiu Zhu & Ming Zhang & Hongan Chen & Jun Ma & Fei Pan, 2025. "The Impact of China’s Circular Economy Demonstration Policy on Urban Green Innovation Efficiency," Sustainability, MDPI, vol. 17(15), pages 1-20, August.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:15:p:7037-:d:1716477
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/15/7037/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/15/7037/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yongchao Wu & Xinyuan Wei & Yanan Liu & Huilong Li, 2024. "Can the Circular Economy Demonstration Policy Enhance the Green Innovation Level? A Quasi-Natural Experiment from China," Sustainability, MDPI, vol. 16(8), pages 1-17, April.
    2. Mao Chai & Chao Wu & Yusen Luo & Claudia Nyarko Mensah, 2025. "New Energy Demonstration City Policy and Corporate Green Innovation: From the Perspective of Industrial and Regional Spillover Effect," Sustainability, MDPI, vol. 17(7), pages 1-23, April.
    3. Cui, Shuhui & Li, Guangqin & Liu, Jiashu, 2024. "Can the construction of smart cities promote the capital allocation efficiency: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    4. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    5. Jiahui Yi & Sheng Dai & Jinhua Cheng & Yueer Dai, 2024. "Heterogeneous Effect of Renewable Energy Policies on Resource Misallocation: Evidence From Chinese Zombie Firms," The Energy Journal, , vol. 45(5), pages 33-63, September.
    6. Korhonen, Jouni & Honkasalo, Antero & Seppälä, Jyri, 2018. "Circular Economy: The Concept and its Limitations," Ecological Economics, Elsevier, vol. 143(C), pages 37-46.
    7. Zhou, P. & Ang, B.W. & Han, J.Y., 2010. "Total factor carbon emission performance: A Malmquist index analysis," Energy Economics, Elsevier, vol. 32(1), pages 194-201, January.
    8. Kairui Cao & Laiqun Jin & Yuanyuan Zhu & Zilong Nie & Hao Li, 2022. "Does China’s National Demonstration Eco-Industrial Park Reduce Carbon Dioxide and Sulfur Dioxide—A Study Based on the Upgrading and Transformation Process," IJERPH, MDPI, vol. 19(19), pages 1-19, October.
    9. Xiangxia Liu & Shen Liu, 2024. "Green Technology Innovation, Capital-Factor Allocation, and Manufacturing-Export Resilience," Sustainability, MDPI, vol. 16(3), pages 1-20, February.
    10. Marco Pesce & Ilaria Tamai & Deyan Guo & Andrea Critto & Daniele Brombal & Xiaohui Wang & Hongguang Cheng & Antonio Marcomini, 2020. "Circular Economy in China: Translating Principles into Practice," Sustainability, MDPI, vol. 12(3), pages 1-31, January.
    11. Yanbo Zhang & Xiang Li, 2022. "The Impact of the Green Finance Reform and Innovation Pilot Zone on the Green Innovation—Evidence from China," IJERPH, MDPI, vol. 19(12), pages 1-20, June.
    12. Atif Ansar & Bent Flyvbjerg & Alexander Budzier & Daniel Lunn, 2016. "Does infrastructure investment lead to economic growth or economic fragility? Evidence from China," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(3), pages 360-390.
    13. Xingle Long & Chuanwang Sun & Chao Wu & Bin Chen & Kofi Agyenim Boateng, 2020. "Green innovation efficiency across China’s 30 provinces: estimate, comparison, and convergence," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(7), pages 1243-1260, October.
    14. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    15. Xiaohong Liu & Meiwen Zhang, 2022. "The Impact of Market Integration on Renewable Energy Technology Innovation: Evidence from China," Sustainability, MDPI, vol. 14(21), pages 1-14, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lu, Heyu & Li, Jiayang & Wu, Zongfa & Zeng, Yufeiyang, 2025. "Rethinking energy allocation: Can green finance be the solution? — Evidence from machine learning method," Energy, Elsevier, vol. 332(C).
    2. Qunfang Xu & Kairui Cao & Jiaying Dai & Yuanyuan Zhu & Yue Dai, 2023. "Nonlinear Effects of Eco-Industrial Parks on Sulfur Dioxide and Carbon Dioxide Emissions—Estimation Based on Nonlinear DID," Sustainability, MDPI, vol. 15(3), pages 1-19, January.
    3. Jiang, Hongli & Hu, Wenjie & Hou, Yan & Jiang, Pengcheng & Lu, Na, 2025. "Green fiscal policies, economic growth target constraints and carbon emission efficiency: Evidence from DID and double machine learning," Energy, Elsevier, vol. 339(C).
    4. Zhou, Tao & Huang, Xuhui & Zhang, Ning, 2023. "The effect of innovation pilot on carbon total factor productivity: Quasi-experimental evidence from China," Energy Economics, Elsevier, vol. 125(C).
    5. Wang, Rongji & Zhang, Yan & Wan, Wei & Bai, Dongbei & Wang, Jue, 2025. "Circular city construction and energy efficiency: Evidence from China’s ‘circular economy demonstration cities’," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 817-844.
    6. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Ichev, Riste & Valentinčič, Aljoša, 2025. "The effect of impact investing on performance of private firms," Research in International Business and Finance, Elsevier, vol. 73(PA).
    8. Mac Clay, Pablo & Börner, Jan & Sellare, Jorge, 2023. "Institutional and macroeconomic stability mediate the effect of auctions on renewable energy capacity," Energy Policy, Elsevier, vol. 180(C).
    9. Wei, Qingfang & Liu, Yuan & Cai, Weixing & Wan, Jiangtao, 2025. "Open government data and personal default: Evidence from China," Journal of Asian Economics, Elsevier, vol. 100(C).
    10. Catalina Amuedo‐Dorantes & Francisca M. Antman, 2022. "De facto immigration enforcement, ICE raid awareness, and worker engagement," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 373-391, January.
    11. D. Mark Anderson & Yang Liang & Joseph J. Sabia, 2024. "Mandatory seatbelt laws and traffic fatalities: A reassessment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(3), pages 513-521, April.
    12. Nadja van 't Hoff & Giovanni Mellace & Seetha Menon, 2025. "Gender Differences in Healthcare Utilisation -- Evidence from Unexpected Adverse Health Shocks," Papers 2509.01310, arXiv.org.
    13. Shirin, Farzana, 2023. "Does Teacher Salary Support Improve Student Learning Outcomes," 2023 Annual Meeting, July 23-25, Washington D.C. 335793, Agricultural and Applied Economics Association.
    14. Arne Henningsen & Guy Low & David Wuepper & Tobias Dalhaus & Hugo Storm & Dagim Belay & Stefan Hirsch, 2026. "Estimating Causal Effects With Observational Data: Guidelines for Agricultural and Applied Economists," Journal of Agricultural Economics, Wiley Blackwell, vol. 77(2), pages 356-382, June.
    15. Stefan Bauernschuster & Michael Grimm & Cathy M. Hajo, 2023. "The Impact of Margaret Sanger’s Birth Control Clinics on Early 20th Century U.S. Fertility and Mortality," CESifo Working Paper Series 10421, CESifo.
    16. Fabio Bothner & Annette Elisabeth Töller & Paul Philipp Schnase, 2022. "Do Lawsuits by ENGOs Improve Environmental Quality? Results from the Field of Air Pollution Policy in Germany," Sustainability, MDPI, vol. 14(11), pages 1-18, May.
    17. DeMalach, Elad & Schlosser, Analia, 2024. "Short- and Long-Term Effects of Universal Preschool: Evidence from the Arab Population in Israel," CEPR Discussion Papers 18781, Centre for Economic Policy Research.
    18. Bradford, Ashley C. & Fu, Wei & You, Shijun, 2024. "The devastating dance between opioid and housing crises: Evidence from OxyContin reformulation," Journal of Health Economics, Elsevier, vol. 98(C).
    19. Federica Alfani & Vasco Molini & Giacomo Pallante & Alessandro PalmaGran, 2024. "Job displacement and reallocation failure. Evidence from climate shocks in Morocco," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 51(1), pages 1-31.
    20. Luis Alvarez & Bruno Ferman, 2020. "Inference in Difference-in-Differences with Few Treated Units and Spatial Correlation," Papers 2006.16997, arXiv.org, revised Jun 2026.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:15:p:7037-:d:1716477. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager The email address of this maintainer does not seem to be valid anymore. Please ask MDPI Indexing Manager to update the entry or send us the correct address (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.