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Policy Uncertainty Reduces Green Investment

Author

Listed:
  • Mengyu Wang
  • Jeffrey Wurgler
  • Hong Zhang

Abstract

Government subsidies are often used to stimulate environment-friendly investment. We find that Chinese firms reduce green investment as the uncertainty of subsidies rises. This effect is identified from weather-driven fluctuations in air pollution that lead to fluctuations in subsidy allocations: Firms in cities where weather-driven subsidy uncertainty is high engage in less green R&D investment, patent applications, and research staff. Industries that are heavy emitters and those focused on environmental technologies are more affected. The results suggest that policy uncertainty may originate not only from political and macroeconomic shocks but from behavioral mechanisms that link policy to salient recent conditions.

Suggested Citation

  • Mengyu Wang & Jeffrey Wurgler & Hong Zhang, 2023. "Policy Uncertainty Reduces Green Investment," NBER Working Papers 31401, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31401
    Note: CF EEE PE PR
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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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