Policy complementary or policy crowding-out? Effects of cross-instrumental policy mix on green innovation in China

Stimulating innovation and encouraging green development require different policy instruments, implying that an effective combination of these instruments is critical for achieving green innovation. The paper evaluates the combined impact of innovation and environmental policies. Taking the combination of China's Innovative City Pilot (ICP) and Low-carbon City Pilot (LCP) policies as an example, it investigates whether their impact on green innovation is complementary. Results show that the ICP and LCP policies can promote urban green innovation, with a net impact of about 12 % and 7 %, respectively. However, the two policies can also crowd each other out, as the ICP policy may substitute for the effect of the LCP policy. Furthermore, this crowding-out effect is more prominent in cities with low administrative levels, of Class I size, and without high-speed rail. The empirical evidence indicates that this cross-instrumental mix fails to produce the desirable policy complementarity and suggests that policymakers looking to support green innovation should carefully coordinate their implementation of environmental and innovation policies.