Journal of Cleaner Production 258 (2020) 120849

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Could environmental regulation and R&D tax incentives affect green

product innovation?
Malin Song a, Shuhong Wang b, c, *, 1, Hongyan Zhang b
a
School of Statistics and Applied Mathematics, Anhui University of Finance and Economics, Bengbu, 233030, PR China
b
School of Economics, Ocean University of China, Qingdao, 266100, PR China
c
Institute of Marine Development, Ocean University of China, Qingdao, 266100, PR China

a r t i c l e i n f o a b s t r a c t

Article history: Green product innovation represented by information and communication technology (ICT) refers to an
Received 25 November 2019 environmental production mode with innovation as the main carrier. As a key means to achieve the
Received in revised form coordinated development of environmental protection and economic development, green product
2 January 2020
innovation is still in the lead-in period in China; since it is difficult to achieve rapid development only by
Accepted 1 March 2020
Available online 3 March 2020
relying on market forces, it needs government intervention and regulation. To guide the development of
the green product innovation industry, this study analyzes the effect of environmental regulation and
^ as de
Handling Editor: Cecilia Maria Villas Bo R&D tax incentives on green product innovation from a disciplinary and incentive perspective. Data from
Almeida 30 regions in China from 2009 to 2017 are used. First, a panel model is proposed for the analysis of the
entire country to determine the relationships among environmental regulation, R&D tax preferential
Keywords: policies, and green product innovation. Due to the regional differences in industrial structure and eco-
Environmental regulation nomic development level in the various regions of China, to enhance the accuracy of the research results,
R&D tax incentives the inflection points of environmental regulations in different provinces are analyzed. The research re-
Green product innovation
sults show a U-shaped relationship between environmental regulation and green product innovation,
Panel model
that is, given the increasing intensity of environmental regulation, its effect will gradually change from
inhibition to promotion. Currently, most provinces in China are close to the inflection point of envi-
ronmental regulation, meaning the regulation level needs to be further improved. Further, R&D tax
incentives play a significant role in promoting green product innovation. The results not only identify the
determinants of green product innovation but also provide a theoretical and decision-making framework
for the industrial development and promotion of green product innovation in China.
© 2020 Elsevier Ltd. All rights reserved.

1. Introduction issued a number of laws and regulations, thus gradually forming a

Over the past 40 years of reform and opening-up, China’s
economy has developed at a high speed and living standards have
improved greatly. However, while the country has made significant
achievements in economic construction, the related environmental
problems have not been solved and have increasingly become a
bottleneck, which restricts China’s sustainable economic develop-
ment (Miao et al., 2019; Wang et al., 2017; Zha et al., 2016). Given
the increasingly severe environmental situation, the government
* Corresponding author. School of Economics, Ocean University of China, Qing-
dao, 266100, PR China.
E-mail address: shwang01@sina.com (S. Wang).
1
The author of this paper is equally contributed and sorted by the alphabetical
order of surname.
multi-governance system of the ecological environment with
governmental organizations having the leading role, enterprises
being the main body, and citizens and social organizations the
participants.
In the context of the transformation of economic development
pattern and the increasing pressure on enterprises to conserve
energy and reduce emission (Jiang et al., 2019), green product
innovation, as a means of achieving sustainable development and
building a resource-saving and environment-friendly society,
emerged (Yin et al., 2018). Compared with sustainable develop-
ment concepts, such as the circular economy (Kapsalis et al., 2019)
and bioeconomy (Bale zentis et al., 2019; Liobikiene et al., 2019),
green product innovation pays more attention to the main role of
innovation. Specifically, it refers to products that are easy to be
recycled, utilized, and regenerated after use, and considering

https://doi.org/10.1016/j.jclepro.2020.120849
0959-6526/© 2020 Elsevier Ltd. All rights reserved.
2 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849
environmental factors in the process of product design and modi-
fication (with innovation as the carrier). Actively promoting green
product innovation not only meets people’s increasing material and
cultural needs but also optimizes the economic structure and re-
duces environmental pollution. It is of great significance to coor-
dinate the relationship between economic development and
environmental quality and achieve green development goals
(Chang, 2014). Information and communication technology (ICT),
which has made significant breakthroughs in 5G technology, arti-
ficial intelligence, blockchain technology, and other fields in recent
years, is a typical representative of green product innovation. As a
pioneer of energy conservation and environmental protection, ICT
can help other industries improve efficiency and provide technical
support through R&D innovation so as to achieve energy conser-
vation, emission reduction, and green development. With the
arrival of the fourth green industrial revolution era, which is
characterized by green factor investment and the rapid develop-
ment of innovative industries such as ICT, water purification, and
wastewater treatment (Bian et al., 2013; Han et al., 2018), green
product innovation will be full of vitality in the future with its su-
perior environmental friendliness and innovation orientation.
However, the growth rate of green product innovation in China
is still relatively low, and its development faces many problems. As
the main body responsible for environmental pollution and as the
leaders of green product innovation, enterprises should be
responsible for green development, which is also at the core of
enterprise transformation and upgrading and long-term, stable
development. However, most enterprises are still confined to their
immediate interests, showing strong market speculativeness, no
sense of urgency for enterprise transformation, and no strategic
perspective for green product innovation and promotion (Stucki
et al., 2018). Moreover, since the benefits of green product inno-
vation are public rather than private and the returns are lower than
those of traditional innovation activities, companies lack the eco-
nomic incentives to actively invest in this region. The lack of
attention and investment intentions from enterprises has restricted
the development of green product innovation, meaning its fast
promotion cannot only by relying on market forces. Therefore,
government intervention and regulation are needed.
To get rid of the dilemma of the lack of interest and willingness
to invest in enterprises involved in the development of green
product innovation, and improve the level of green product inno-
vation, the government must adopt both disciplinary and incentive
policies, while strictly regulating industries to achieve better re-
sults. Since the 1970s, the continuous deterioration of the envi-
ronment has forced government departments to restrict polluters
through legislation and environmental regulation has been uni-
formly adopted by government departments (Wang et al., 2019). To
reduce environmental pollution while also developing the econ-
omy, environmental regulation has been widely applied in various
countries (Zafarullah and Huque, 2018). For example, in 2015, the
Paris Agreement was signed at the Paris Climate Conference to
regulate the reduction of greenhouse gas emissions by all parties. In
June 2018, the State Council of China issued a three-year action
plan, called the “blue sky defensive war,” to promote energy con-
servation and emission reduction in key sectors such as coal
burning and industrial pollution through regional joint prevention
and control. Overall, environmental regulation represents the
direct or indirect control and intervention of governments on en-
terprises’ resource utilization, for environmental protection and
resource conservation. Environmental regulation can not only
significantly improve the “green” consciousness of enterprises at
the institutional level, make them understand the importance of
green product innovation, and guide them to actively participate in
it, but also increase the pollution cost of enterprises, force them to
invest in green product innovation, and incentivize industrial
transformation and upgrading (Ji et al., 2019).
In recent years, the Chinese government has implemented a
large number of preferential R&D tax policies to encourage green
product innovation (Bai et al., 2019). By June 2019, China intro-
duced 89 tax incentives and key entrepreneurship and employ-
ment regions. Particularly, 78 new tax incentives have been issued
since 2013, covering the entire life cycle of enterprises to compre-
hensively promote R&D and innovation activities. R&D tax prefer-
ence is a type of policy support that the government provides to
specific taxpayers. Green product innovation starts with R&D and
ends with the introduction of the product on the market. It involves
a series of activities closely related and with a strong sensitivity to
tax (Stucki et al., 2018). Environmental regulation is the most
common punitive policy and R&D tax preference is the most
representative incentive policy.
The contributions of this study are threefold. First, most existing
studies on green product innovation focus on developed countries,
which generally have stricter environmental regulations than
developing countries. Hence, many of their conclusions are not
applicable to most developing countries. China is a typical devel-
oping country with fast economic growth, low per capita income,
weak legal protection, and an imperfect tax system, which is why it
is selected as the research object of this study to supplement the
research on the determinants of green product innovation. It can
also provide further reference for the transformation and devel-
opment of other developing countries.
Second, the existing research focuses on the analysis of single
policy instruments, with only a few scholars considering the
perspective of stakeholders and supply and demand (Dangelico,
2016). Based on China’s basic national conditions, this study se-
lects the environmental regulations and representative R&D tax
preferential policies that are widely used in China, and it analyzes
their effects on green product innovation, which is of great inno-
vation significance.
Third, most existing studies defined green innovation activities
broadly, but identified no subdivisions (Stucki et al., 2018). How-
ever, green innovation includes green product and process inno-
vation. Although both are innovative activities aimed at
environmental protection and resource conservation, the core of
green process innovation is technology, while green product
innovation is focused on products. The two components also have
different emphases and belong to different stages of innovation,
thus needing to be measured by different indicators. In other
words, confusion between these two components will likely lead to
the distortion of the research results (Stucki et al., 2018). As such,
this study selected green product innovation as the research object,
which makes the results more reliable.
The rest of the paper is structured as follows: the second section
reviews the literature; the third section establishes the research
model; the fourth section describes the empirical analysis; the final
section provides conclusions and discusses the results.
2. Literature review
The Commission of the European Community (2001) defined
green products as those that consume fewer resources, have a
lower environmental impact and risk, and prevent the generation
of pollutants during the design stage. Over time, people have put
forward higher standards for green products, from not being
harmful to the environment in the process of manufacturing, use,
and disposal to a high level of repairability, re-manufacturability,
and efficiency. In recent years, green products furthered the
concept of innovation and developed the industry of green product
innovation, which considers the design of new products and is
 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849
committed to reducing their negative impact on the environment
over the entire life cycle. Because green product innovation has
environmental and economic benefits, it has gradually attracted the
attention of scholars. This research field mainly focuses on the
determinants of green product innovation.
It is found that both the internal and external determinants of
green product innovation may affect its development, among
which internal determinants include enterprise profitability (Li
et al., 2017), enterprise senior management (Dubey et al., 2017),
customer pressure (Huang et al., 2016), while external de-
terminants include knowledge sharing (Arfi et al., 2018), political
capital (Lin et al., 2014), and foreign direct investment (Song et al.,
2015). This study aims to analyze the effects of China’s existing
policy on green product innovation, namely those triggered by
external factors. Environmental regulation is the most widely used
external means of the Chinese government. Traditional environ-
mental economics emphasizes the negative effects of environ-
mental regulation (Liu et al., 2017). From a static perspective, the
introduction of environmental regulation will lead to an increase in
enterprise costs and a decrease in competitiveness, since enter-
prises allocated resources with minimum cost. However, Porter
(1991) and Porter and Claas (1995) considered that the traditional
static research was one-sided, and found that environmental
regulation had a positive effect on green product innovation. That
is, reasonable environmental regulation could promote enterprises’
green product innovation and also achieve economic growth
through innovation compensation and first-mover advantages. The
Porter hypothesis thus dynamically analyzed the impacts of envi-
ronmental regulation on green product innovation, with profound
impacts on future research.
More recently, scholars also discussed the effects of environ-
mental regulation. For example, Steinhorst and Matthies (2016)
empirically analyzed the energy industry and found that environ-
mental regulation could have positive impacts on green product
innovation by promoting public interest and investment. Based on
this argument, Xu (2017) used interprovincial data to prove this
point. Giessen and Sahide (2017) further considered national data
and reached consistent conclusions. However, other scholars hold
the opposite view, believing that environmental regulation cannot
stimulate green product innovation, but rather has a negative
impact on green product innovation due to the increased cost
pressure and reduced flexibility it causes. For example, the empir-
ical study of Stucki et al. (2018) proved environmental regulation
would crowd out innovation investment in green products and
have adverse effects on it.
This study holds the view that, although the above views are
reasonable, they are all one-sided, and we should not limit our-
selves to the study of linear relationships. In other words, the
specific effects of environmental regulation on green product
innovation may be more complex and non-linear. For instance,
Lanoie et al. (2008) believed that environmental regulation had a
negative effect on industrial productivity in the short term, but a
significant promoting effect in the long term, which confirms the
above arguments. The business objective of an enterprise is profit
maximization. Whether it will increase investment in green prod-
uct innovation depends on whether the green product can bring net
benefits compared with the cost of environmental regulation. Since
environmental regulation intensity will directly affect enterprises’
regulation costs and investment decisions, its effects are closely
related to its regulatory intensity. On one hand, when environ-
mental regulation is relatively weak, such as due to low pollution
cost, enterprises may refuse to invest in green product innovation
to maximize profit (Lanoie et al., 2008). Under stricter environ-
mental regulation, the price companies pay for rejecting green
product innovation increases. Moreover, strict environmental
3
policies attract public attention, create market demand for green
products, ensure the long-term value of enterprises’ green product
innovation investment, and enhance enterprises’ investment con-
fidence, making enterprises more likely to increase their invest-
ment (Lanoie et al., 2008). On the other hand, green product
innovation requires an accumulation of resources and time, and in
the short term, enterprises still have to bear the regulation cost. As
such, with rising regulatory costs and limited capital flows, the
crowding out effect on green investment will continue to increase,
leading to a continuous decline in enterprise flexibility and eco-
nomic efficiency, which will in turn adversely impact green product
innovation. As such, the effect of environmental regulation on
green product innovation is complex, and there may exhibit a non-
linear relationship. Wang et al., (2019) empirical analysis of OECD’s
main industrial sectors found that weak environmental regulations
can promote green product innovation, but strict environmental
regulations have a crowding out effect on investment, thus
adversely affecting green product innovation. However, as China
and the OECD countries show differences no matter in environ-
mental regulation intensity or level of industrial development,
these research results may not be applicable to China, which makes
studying the effects of environmental regulation in China on green
product innovation of great significance. Therefore, based on
China’s national context and considering the heterogeneity of
provinces, this study calculates the inflection point of environ-
mental regulation for each province to quantitatively analyze the
impact of environmental regulation on green product innovation
and provide policy suggestions for its further development.
In addition to restrictive economic measures, governments have
also used supportive measures, such as R&D tax incentives, to
subsidize enterprises that develop green product innovations. As
such, R&D tax incentives may not only transform the positive ex-
ternality of enterprises’ green product innovation to internaliza-
tion, increase development benefits, encourage enterprises to carry
out green product innovation investments (Bai et al., 2019), but also
reduce the cost of investment to decrease enterprises’ risk resis-
tance and increase the net investment profit. Therefore, some
scholars believe that R&D tax incentives have a positive role in
promoting green product innovation. For instance, Stucki et al.
(2018) and Dangelico (2016) verified this view through empirical
demonstration and a systematic literature review, respectively.
However, some scholars believe that the effect of R&D tax prefer-
ence is restricted by the actual situation; the loose regulatory sys-
tem will generate rent-seeking space, and the government’s tax
preference may replace the R&D investment required by the en-
terprise, with crowding out effect. Through the analysis of
company-level data, Jia and Ma (2017) found that R&D tax in-
centives have no positive impact on state-owned and non-high-
tech enterprises. Guellec and Potterie (2003) further analyzed
national-level data and showed that if enterprises could not un-
derstand the long-term nature of government R&D tax incentive
policies, tax incentive policies would be invalid. Although the above
studies analyzed the effects of R&D tax incentives, they are mostly
based on static models and have not reached consistent conclu-
sions. Since green product innovation is a long-term dynamic
process, this study not only carries out static model estimation but
also investigates the effect of R&D tax incentives based on a dy-
namic model. Moreover, different countries have different R&D tax
incentive policies and conditions, and previous conclusions may
not be applicable to China. Therefore, it is necessary to specifically
analyze the effects of China’s R&D tax incentives.
4 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849
3. Model and data
3.1. Model setting
The second part of this study finds that the effect of environ-
mental regulation on green product innovation is closely related to
its intensity (Lanoie et al., 2008), and there may be a U-shaped
relationship between them (Wang et al., 2019), while the R&D tax
preference has a linear relationship with green product innovation
(Stucki et al., 2018; Dangelico, 2016). To eliminate the interference
of other factors and objectively verify whether the analysis can get
the corresponding empirical support, this study first constructs a
static regression model. The fixed effect of the panel model and
random effect model are used to fit the innovation degree of pro-
vincial green products. Given that the development of green
product innovation is dynamic, the accumulation of existing
innovation resources will have an impact on its subsequent
development, so the dynamic model analysis is carried out. To
reduce the heteroscedasticity of the equation and the multi-
collinearity of variables, the logarithm of green product innovation,
R&D tax preference, and control variables are taken in the empirical
model. When the difference between the variables selected is too
large, it causes a significant error in the results of the computer
operation. Therefore, based on the descriptive analysis of variables
and regression results of the model, we did not take the logarithm
of environmental regulations but standardized them. The regres-
sion model of the mechanism of environmental regulation, R&D tax
preference, and green product innovation is as follows:
lnðproductit Þ ¼ a þ b1 enrit þ b2 enrit2 þ b3 lnðgovit Þ þ controlit
þ εit ;
(1)
where i refers to the region, t to the year, a is the constant term, b is
the explanatory variable’s coefficient, ε is the residual error term,
and control represents control variables. Model (1) includes as
explanatory variables R&D tax incentives, environmental regula-
tion, and its quadratic terms and control variables, thus focusing on
investigating the effects of R&D tax incentives on green product
innovation, as well as the non-linear relationship between envi-
ronmental regulation and green product innovation.
3.2. Data sources
This study uses inter-provincial panel data on multiple di-
mensions such as the economy, science and technology, and the
environment. Green product innovation is the explained variable,
and environmental regulation and R&D tax incentives are the
explanatory variables. The literature shows that besides environ-
mental regulation and R&D tax incentives, green product innova-
tion is affected by many other factors. This study selects control
variables based on the differences in the samples of the various
provinces and the factors influencing green product innovation
such as people’s living standards, industrial share, and develop-
ment level of an export-oriented economy. The data mainly come
from the China Energy Statistical Yearbook, China Science and
Technology Statistical Yearbook, China Environment Yearbook,
China Statistical Yearbook, China Labor Statistical Yearbook, and
Statistical Yearbook of Science and Technology Activities of Indus-
trial Enterprises. As the Chinese government issued and imple-
mented the Administrative Measures for Pre-Tax Deduction of
Enterprise Research and Development Expenses (Trial) in 2008 and
given the availability of the data, the sample period is from 2009 to
2017.
Green product innovation (product). Most existing studies use
patent data to measure green product innovation (Bai et al., 2019),
which limits the investigation into a highly innovative segment.
Although this approach can be used to quickly collect a large
amount of comparable data, it is difficult to determine whether the
innovation activities refer to technological or product innovation as
the determinants of the different types of innovation may differ
(Stucki et al., 2018). Weng et al. (2015) put forward the concepts of
energy-efficient and external innovation, and measured green
product innovation by the degree of pollution reduction and energy
consumption of new products. Compared with a single indicator,
such as a green patent, this can better reflect the characteristics of
green product innovation. Therefore, this study selected the ratio
between industrial energy consumption and new product sales
revenue of industrial enterprises to measure green product inno-
vation. The smaller this ratio is, the stronger the regional green
product innovation ability is.
Environmental regulation (enr). Existing studies mostly use
energy consumption and pollutant emissions to measure green
product innovation (Ahmed and Ahmed, 2018), but these are
closely related to the industrial structure and cannot fully reflect
the changes in environmental regulation intensity. The most
important manifestation of environmental regulation intensity is
the operating cost of pollution control facilities, which can be used
as a measurement standard. To eliminate the impact of enterprise
size, enterprise operating income and environmental protection
input should also be considered. Therefore, based on cost, this
study uses the ratio between the operation cost of pollution control
facilities and the income of the main business of industrial enter-
prises to measure environmental regulation. The larger the ratio,
the stronger environmental regulation is. Because the effect of
environmental regulation on green product innovation is complex,
with both crowding out effect and guiding effects, we cannot
determine whether its coefficient is positive or negative.
R&D incentives (gov). The tax relief of R&D expenses deduction
is directly used to measure the R&D tax incentives. Generally, green
product innovation is sensitive to R&D tax incentives, and R&D tax
incentives can in turn significantly improve enterprises’ risk resis-
tance in terms of R&D, reduce their tax burden, and stimulate R&D
investment. Therefore, we estimate it will have a positive effect on
green product innovation and reduce the energy consumption on
new products, its estimated coefficient being negative.
People’s living standards (consume). As the consumption level is
the most direct reflection of people’s living standards, we residents’
consumption level as a proxy for living standards. It is generally
believed that, with the improvement of living standards, people
will pay more attention to the quality of life, environment, and
other factors, and the demand for green products will increase
accordingly. Therefore, we estimate this variable will have a posi-
tive effect on green product innovation and reduce the energy
consumption on new products. Its coefficient is likely to be
negative.
Industrial share (rindus). This variable is measured by the ratio
between the main business income of industrial enterprises above
a specific size and GDP. Generally, the higher the industrial pro-
portion is, the more complete the industrial system, the larger the
market share, the longer the business time of the enterprise, the
stronger the ability to control the market trend, the higher the R&D
motivation, and the better the development of green product
innovation are (Song and Wang, 2017). However, with the contin-
uous adjustment of China’s economic structure and the develop-
ment of its tertiary industry, China’s industry registers an overall
trend of decline, with the contribution of the secondary industry
having gradually declined from 52.3% in 2009 to 36.3% in 2017.
Therefore, we estimate that the decrease in industrial share will
 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849
have a negative effect on green product innovation and increase the
energy consumption on new products, its estimated coefficient
being positive.
The development level of the export-oriented economy (ropen).
This variable is measured by the ratio of the main business income
of foreign industrial enterprises to the GDP. Generally, foreign in-
vestment not only brings strong financial support to China’s green
innovation activities but also advanced green innovation resources
to the manufacturing industry. Therefore, we estimate it will have a
positive effect on green product innovation and reduce the energy
consumption on new products, having a negative coefficient.
The descriptive statistics of the full sample is conducted to
further understand the characteristics of the research data, and the
results are shown in Table 1.
4. Empirical analysis
4.1. Static analysis
Based on the model type selected after the Hausmann test, the
model is fitted, and the results are shown in Table 2. All regression
results reject the original hypothesis at the significance level of 5%,
so the fixed effect model is selected for analysis.
The study adopts the method of gradually adding control var-
iables to the regression model, and the regression results show
that the coefficient of environmental regulation is significantly
positive, while the quadratic coefficient of environmental regula-
tion is significantly negative, that is, there exists a U-shaped
relationship between environmental regulation and green product
innovation, and the influence of environmental regulation on
green product innovation changes with the increase of environ-
mental regulation intensity. When environmental regulation is
weak, the trade-off among energy, the environment, and the
economy is extreme. Environmental regulation policies will lead
enterprises to invest more in pollution control rather than tech-
nological innovation, meaning the “Porter effect” cannot be real-
ized in the manufacturing industry, thus inhibiting green product
innovation. When environmental regulation is strict, the short-
term measures adopted by enterprises to cope with it will be
ineffective due to the long-term regulation strategy of the gov-
ernment. Therefore, enterprises will realize the inefficiency of
their economic behaviors and are more likely to carry out Pareto
improvements. That is, they will increase their competitiveness by
strengthening green product innovation and improving product
quality and production to offset the compliance costs. The more
control is imposed by government regulators, the more enter-
prises will invest in green product innovation and, therefore, the
more likely it will be for environmentally sustainable innovation
to be satisfactory.
R&D tax incentives have a significant negative effect on the
energy consumption due to green product innovation and are
conducive to green product innovation. This conclusion is in line
with existing research results (Dimos and Pugh, 2016). R&D tax
Table 1
Descriptive statistics.
Variable Sample size Mean value Standard deviation
ln (product) 270 1.9517 1.2192
enr 270 30.7590 27.2358
enr2 270 1685.16 3716.63
ln (gov) 270 10.7119 1.4088
ln (consume) 270 9.5870 0.4768
ln (industry) 270 0.9848 0.2974
ln (ropen) 270 1.8145 1.0642
5
preferential policies not only reduce enterprises’ R&D costs and
increase their expected profitability but also reduce the complexity
of private interests and internalize the positive external influences
of R&D activities, which can further solve the problem of resource
allocation and make markets more effective.
Improvements in living standards will hinder the development
of green product innovation, which is contrary to the predicted
results. This may be because the development of green product
innovation depends on the public’s perception of the importance of
green products: when people think environmental issues are not
important, other issues will be given priority (Bar, 2015). Moreover,
consumers need to spend time and energy to understand and
approve green products, and if they are not willing to try new
technologies, they may retain their original way of consumption.
Although the living conditions of the Chinese people improved
greatly in recent years, their environmental protection awareness
needs to be improved. Moreover, the public’s recognition of green
products at the present stage is not wide enough. Therefore, an
improvement in people’s living standards will inhibit green product
innovation.
The decrease in industrial share is consistent with the expected
results, that is, of a significant inhibitory effect on green product
innovation, and the estimated coefficient is large. At present, China
is in the late stages of industrialization. The output share of the
industrial sector continues to decline, and the proportion of the
employed population to total employment continues to decrease. A
large number of production factors, such as capital and labor, flow
from the industrial sector to the service sector, which distorts the
factor market. Hsieh and Klenow (2009) use microdata to show that
factor distortion affected negatively the free flow of innovation
resources and their rational distribution, reduced the performance
of innovative activities, inhibited regional innovation efficiency,
and seriously restricted the improvement of China’s total factor
productivity.
Export-oriented economic development has significantly
reduced the energy consumption of new products and promoted
the development of green product innovation, which is consistent
with the expectations. Song and Wang (2017) found that Chinese
enterprises’ participation in the global value chain would promote
the progress of green technology. As per the “pollution halo” hy-
pothesis, the higher the export-oriented economic development
level, the stronger the liquidity of capital, and the influx of foreign
capital can generate technology spillovers on domestic enterprises
through competition, demonstration, and employee flows;
improve production efficiency; promote clean technology and
green product innovation; and improve the environmental quality
of the host country (Fernandes et al., 2019).
4.2. Dynamic analysis
Based on the original static panel model, the previous lag term
of the explained variable is added to form the following panel dy-
namic model:
Minimum value Maximum value Pre-estimated coefficient sign
0.0751 6.1443
0.2498 180.1796 ?
0.0624 32464.69 ?
5.9026 13.8988 e
8.5260 10.8896 e
2.8760 0.6342 þ
4.2434 0.1336 e
6 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849

Table 2
Regression results from the static panel model.

(1) (2) (3) (4)

enr 0.4331*** 0.4307*** 0.3766*** 0.3846***

(0.0664) (0.0661) (0.0693) (0.0685)

enr2 0.3122*** 0.3096*** 0.2693*** 0.2698***

(0.0558) (0.0555) (0.0576) (0.0569)

ln (gov) 0.2282*** 0.2253*** 0.2144*** 0.2403***

(0.0420) (0.0418) (0.0416) (0.0423)

ln (consume) 0.1043* 0.1104** 0.0926*

(0.0547) (0.0542) (0.0540)

ln (industry) 0.3102** 0.3837***

(0.1313) (0.1327)

ln (ropen) 0.2474***
(0.0942)

constant 4.3965*** 3.3654*** 3.4949*** 3.5669***

0.4500 0.7019 0.6973 0.6893

Observed value 270 270 270 270

P value 0.0000 0.0000 0.0000 0.0425

Hausman test results Fixed effects model Fixed effects model Fixed effects model Fixed effects model

Note: The figures between brackets are standard deviations of the estimated coefficients; dividing the coefficients by standard deviations will yield the t statistics; *p < 0.1;
**p < 0.05; ***p < 0.01.

new products, indicating that the improvement in the R&D level

can promote the innovation of green products, which is in line with
lnðproductit Þ ¼ a þ b0 ln producti;t1 þ b1 enrit þ b2 enrit2
þ b3 lnðgovit Þ þ controlit þ εit ;
where t-1 refers to the previous lagged item of green product
innovation; the explained and explanatory variables are the same
as in the static panel model. To ensure the robustness of the results,
the robustness of the model fit is tested. From the perspective of
R&D level, enterprise scale, and regional development state, the
control variables are replaced by R&D personnel input (rd),
measured by the ratio of R&D personnel to employed personnel;
enterprise size (size), measured by the ratio of the main business
income of industrial enterprises above designated scale to the
number of enterprises; and regional development level (rGDP),
measured by GDP per capita, respectively. To reduce hetero-
scedasticity and multicollinearity, the newly added control vari-
ables are also expressed logarithmically.
Considering the possible correlation between the explanatory
variables and error terms, the differential and system GMM
methods are adopted for the regression on the original data and the
after replacing the control variables, respectively. The results show
that all regression correlation tests for the Arellano and Bond (AR)
second-order sequences and Sargan tests support the null hy-
pothesis. In other words, there is no second-order random error
term autocorrelation and over-identification of instrumental vari-
ables in the model. Therefore, the estimation results of differential
and system GMM methods are effective.
As shown in Table 3, the regression results of the dynamic and
static panel are consistent before and after the control variables are
added; the direction of the influences of all variables on the
explained variable shows no change and the results remain sig-
nificant. Therefore, the regression model of environmental regu-
lation, R&D tax incentives, and green product innovation fitted by
the panel model is relatively stable and passed the robustness test.
Under the dynamic panel, there is still a U-shaped relationship
between environmental regulation and green product innovation,
and R&D tax incentives can still promote green product innovation.
The newly added control variable, R&D personnel input, is
negatively correlated with the energy consumption of the output of
the general knowledge. Green product innovation is most likely to
(2) come from the comparative advantage of human resources, such as
Germany’s rapid development in wind turbines and its expertise in
high-precision processing. R&D personnel input is a key driver of
innovation and can be seen as a potential source of innovation. The
increase in R&D personnel input can thus promote technological
progress, improve competitive advantage and innovation perfor-
mance, and promote green production efficiency. From the per-
spectives of input and output, the introduction of talents leads to a
continuous emergence of innovation.
Enterprise size plays a significant role in promoting green
product innovation, which confirms Schumpeter’s view that only
when an enterprise reaches a certain scale and accumulates certain
internal resources and capabilities it can better support various
R&D activities, control the price of new products, and bear R&D
risks. Generally, large enterprises have sustained competitive
advantage, strong organizational management ability, talent
reserve, green product R&D ability and high green innovation
performance, face less market uncertainty, and can easily raise
funds (Dangelico, 2016); Although small enterprises are more likely
to respond to R&D tax incentives due to financial constraints (Song
and Wang, 2017), they have a relatively slow development of their
green industries because of the limitations of technology and
infrastructure (Rahman et al., 2019). Therefore, it is easier for larger
enterprises to become the main body of innovation. Halila and
Rundquist (2011) compared the subjects of environmentally sus-
tainable and traditional innovation methods, and found that the
adoption of environmentally sustainable innovation had higher
requirements on enterprise size; moreover, green product inno-
vation subjects are more inclined to establish strong partnerships
with stakeholders to enhance their technological advantages and
increase risk resistance, meaning there may be a two-way inter-
action between enterprise size and green product innovation.
The level of regional development has an inhibitory effect on
green product innovation, which may be due to the fact that China’s
current economic development presents high energy consumption
and high emissions and pollution. Despite its extensive economic
 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849 7

Table 3
Regression results of dynamic panel data.

Variable Differential GMM System GMM Differential GMM System GMM method

ln (product (-1)) 0.5869*** 0.7637*** 0.6487*** 0.8246***

(0.0458) (0.0106) (0.0162) (0.0133)

enr 0.1927*** 0.1638*** 0.1036*** 0.0928***

(0.0166) (0.0157) (0.0097) (0.0152)

enr2 0.1450*** 0.1211*** 0.0800*** 0.0656***

(0.0089) (0.0098) (0.0065) (0.0108)

ln (gov) 0.0778*** 0.0602*** 0.0338*** 0.0651***

(0.0128) (0.0087) (0.0097) (0.0098)

ln (consume) 0.0904*** 0.1023***

(0.0118) (0.0182)

ln (industry) 0.2008** 0.0613***

(0.0940) (0.0358)

ln (ropen) 0.0672*** 0.1555*

(0.0198) (0.0187)

ln (rd) 0.0624*** 0.1109***

(0.0152) (0.0167)

ln (size) 0.2501*** 0.2830***

(0.0283) (0.0155)

ln (rGDP) 0.0387 0.2902***

(0.0310) (0.0220)

constant 0.7677*** 0.1660*** 0.5490* 2.3077***

(0.2603) (0.2653) (0.2950) (0.2782)

AR (2)-P value 0.4006 0.3284 0.3447 0.3904

Sargan-P value 0.1969 0.7987 0.4426 0.8416

Observed value 270 270 270 270

Note: The figures between parentheses are standard deviations of estimated coefficients; divide coefficients by standard deviations will obtain t statistics; *p < 0.1; **p < 0.05;
***p < 0.01.

growth into the world’s second largest economy, problems such as
high energy consumption, high carbon emissions, and insufficient
innovation exist. Further, China’s manufacturing industry is still
dominated by medium- and low-end industries, whose level of
technological innovation needs to improve, and their weak
awareness of environmental protection is not conducive to the
development of green product innovation.
province and adopt the nlinfit function to perform non-linear
fitting to obtain the inflection point values of each province’s
environmental regulation. And the inflection point of each province
is quantitatively analyzed here and the spatio-temporal distribu-
tion map of the inflection point is drawn according to the research
results in Fig. 1.
The analysis results are consistent with the expectation that the

4.3. Analysis of inflection point

The U-shaped relationship between environmental regulation

and green product innovation and the negative impact of envi-
ronmental regulation on green product innovation is a short-term
effect. Once the inflection point is crossed, a win-win situation
between environment and innovation can be achieved. However,
due to the different development levels of the various provinces
and cities in China, regions with a more developed economy may
have a lower inflection point due to the influences of technology
and population quality (Lv et al., 2017); that is, it is easier to achieve
a win-win situation between environmental regulation and green
product innovation. However, economically backward regions are
different, as high environmental regulation inflection values will
hinder the development of green product innovation. Therefore, it
is necessary to discuss the inflection point of environmental regu-
lation for each region. Most existing studies discuss the inflection
point by dividing China into eastern, central, and western regions
according to the level of economic development. However, the in-
ternal environmental regulation intensity and industrial structure
within each region differ. The effect of environmental regulation on
green product innovation is heterogeneous and cannot be gener- Fig. 1. Spatio-temporal distribution map of inflection points on environmental regu-
alized. Therefore, we use the environmental regulation data of each lation in China.
8 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849

inflection points of environmental regulation show an increasing
trend from the economically developed regions in the east to the
economically backward ones in the west. In the regions with a high
economic level, the industrial and energy structures are relatively
advanced and the technological innovation level is relatively high.
Therefore, the inflection point of environmental regulation may be
negatively correlated with the regional economic development
level, that is, low inflection points in regions with high economic
development level. The low inflection point of environmental
regulation is conducive to giving full play to the positive role of
environmental regulation on green product innovation and
improving the regional industrial structure. To this end, every re-
gion needs to improve its level of regional economic development
to cross the inflection point of environmental regulation when
reasonably specifying the intensity of environmental regulation.
5. Conclusions and discussion
Based on inter-provincial panel data, this study conducted an
empirical analysis of 30 inter-provincial panel datasets in China
from 2009 to 2017 and studies the effects of environmental regu-
lations and R&D tax incentives on green product innovation. First,
the panel analysis of the data makes clear the relationship between
environmental regulation, R&D tax preference, and green product
innovation. Then, provincial analysis is carried out to determine the
inflection point of each province and the distance of the provinces
from their inflection points to further analyze their stage of envi-
ronmental regulation intensity and its effect. The results lead to the
following conclusions and suggestions:
First, governments should consider the characteristics of different
provinces and the heterogeneity of environmental regulation to
formulate differentiated environmental regulation policies and pro-
mote the development of green product innovation. The empirical
test results of this study confirm some scholars’ conjectures about the
nonlinear relationship between environmental regulation and green
product innovation. However, due to the differences in the economic
development level and policy system, the results are significantly
different from the empirical analysis of the OECD industrial sector
(Wang et al., 2019). The results show that there is a U-shaped rela-
tionship between environmental regulation and green product
innovation. Due to regional heterogeneity, the inflection points of
different provinces are different. At present, there are only seven
provinces in China that have not crossed the inflection point. For these
provinces, environmental regulation will have a negative impact on
green product innovation for the time being, but this is only a short-
term effect. As long as we continue to strengthen environmental
regulation and cross the inflection point, we can achieve the coordi-
nation and progress of environmental protection and economic
development. In the future, China can strengthen environmental
regulation and improve industry standards to encourage enterprises
to develop new technologies, processes and products, to cross the
regulatory inflection point as soon as possible. To give full play to the
role of environmental regulation in promoting green product inno-
vation, provinces that have crossed the inflection point of environ-
mental regulation should also establish strict environmental
standards and improve the exit mechanism of enterprises.
Second, while formulating environmental regulation policies
and strengthening the pollution control of enterprises, governments
should also formulate corresponding fiscal policies to support en-
terprises’ green product innovation. The empirical results of R&D tax
incentives, which can reduce the R&D risk and cost of enterprises,
encourage enterprises to increase investment in green product
innovation, and thus have a positive impact on green product
innovation, are consistent with most of the existing research results.
At a time when world trade has entered the era of environmental
protection and encountered green barriers, it is of great significance
to introduce environment-friendly subsidies, which can not only
promote industrial upgrading, energy conservation, and consump-
tion reduction, but also break through green barriers and develop
China’s foreign trade. Therefore, for the green product innovation
industry that is represented by ICT, in the future, we should “attach
importance to subsidy” and “neglect administration,” reduce direct
policy intervention, and engage in other incentives through eco-
nomic compensation such as the wide use of R&D tax preferences,
giving full play to the role of market mechanisms in guiding the
development of green product innovation.
This study has some limitations, which need to be further
explored. First, due to the limitation of existing data, this study does
not fully consider the impact of other factors on green product
innovation. To broaden the research field and increase the reli-
ability of the study, internal and external factors such as the orga-
nizational structure of enterprises and the corruption of the
government should be considered in the future research. Second,
this study systematically considers the influence of location factors
on green product innovation. Future studies can focus on the
impact of environmental regulations and R&D tax preferences on
green product innovation under different industrial sectors,
different forms of enterprise organization and other conditions, to
provide more useful information on policy guidance of government
departments(See. Table 4).

Table 4
Distance of each province in Mainland China from the inflection point.

Province Distance from the Environmental Green products Province Distance from the Environmental Green products
inflection point regulation innovation inflection point regulation innovation

Guangxi 1.143 0.151 1.875 Shanxi 1.615 1.449 3.029

Inner 1.052 0.226 3.408 Hubei 2.242 0.325 1.365
Mongolia
Jilin 0.707 0.760 1.469 Beijing 2.954 0.855 0.684
Heilongjiang 0.627 0.555 3.071 Xinjiang 3.347 0.776 3.671
Yunnan 0.376 0.604 3.105 Guizhou 4.495 1.032 3.175
Tianjin 0.286 0.624 0.547 Shanghai 4.988 0.551 0.394
Anhui 0.239 0.312 1.015 Chongqing 5.015 0.448 0.966
Jiangsu 0.186 0.568 0.464 Shaanxi 5.540 0.273 2.331
Jiangxi 0.504 0.356 1.621 Hebei 7.131 0.254 2.435
Liaoning 0.701 0.450 1.902 Shandong 7.202 0.579 1.063
Fujian 0.702 0.606 1.278 Hainan 8.398 0.753 2.742
Hunan 0.823 0.479 1.133 Qinghai 11.514 0.677 5.107
Henan 1.373 0.606 1.799 Gansu 13.503 0.107 2.741
Zhejiang 1.426 0.285 0.363 Guangdong 20.016 0.537 0.490
Sichuan 1.451 0.268 2.073 Ningxia 153.397 2.602 3.235
 M. Song et al. / Journal of Cleaner Production 258 (2020) 120849
Declaration of competing interest
All authors declare that they have no known competing finan-
cial interests or personal relationships that could have appeared to
influence the work reported in this paper.
CRediT authorship contribution statement
Malin Song: Writing - original draft, Writing - review & editing,
Conceptualization, Supervision, Project administration, Funding
acquisition. Shuhong Wang: Methodology, Software, Validation,
Resources, Writing - original draft. Hongyan Zhang: Formal anal-
ysis, Investigation, Writing - review & editing.
Acknowledgments
We acknowledge financial support from the National Natural
Science Foundation of China [Grant Nos. 71601170; 71934001,
71471001, 41771568, 71533004, 71503001]; Projects in Philosophy
and Social Science Research of the Ministry of Education of China
under [Grant No. 16YJC630123]; and the National Key Research and
Development Program of China [Grant No. 2016YFA0602500].
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