Trade Policy Uncertainty: A Double-Edged Sword for Green Innovation

Trade policy uncertainty (TPU) plays an important role in shaping corporate green innovation. Although prior studies have widely examined climate policy uncertainty and carbon emissions trading schemes, the role of trade policy itself remains underexplored. This study fills this gap by constructing a firm-level TPU index based on textual analysis of annual reports from Chinese listed firms. The results reveal an inverted U-shaped relationship. Moderate TPU encourages green innovation, while excessive uncertainty suppresses it. These findings are robust across alternative specifications. Further moderating effect analysis shows that R&D investment and market power amplify the inverted U-shaped relationship between TPU and green innovation. In contrast, financing constraints attenuate this relationship. Heterogeneity tests corroborate the robustness of these moderating effects. This study deepens our understanding of corporate green transition and provides policy implications for sustaining innovation under global trade volatility.