Retesting the Innovation Motivation Effect of the Low-Carbon City Pilot Policy in China: Evidence from Supply Chains

Accurately evaluating the innovation motivation effect of the low-carbon city pilot policy is significant for improving and promoting the pilot policy. However, no study has specifically examined the above effect from the point of view of policy spillover effects among customers and suppliers. Based on this, we introduce the perspective of the supply chain spillover effect and collect annual data from Chinese-listed firms between 2008 and 2020. Using the differences-in-differences (DID) model, we have tested the relationship between the low-carbon city pilot policy in the location of the largest customer and affiliated suppliers’ innovation behavior. Our findings indicate that implementing the low-carbon city pilot policy in the location of the largest customer incentivizes suppliers to invest in innovation. Additionally, our research finds that financing constraints and market monopoly power moderate the supply chain innovation spillover. Interestingly, the impact of the policy is more pronounced among suppliers in high-carbon and low-tech sectors as well as those in the eastern region.