Environmental policy uncertainty and green innovation: A TVP-VAR-SV model approach

This paper aims to measure the impacts of environmental policy uncertainty on green innovation and explore the transmission channel that is less understood in past scientific works. In this paper, we use a newspaper-based sentiment mining approach to establish an index of environmental policy uncertainty in China and implement web crawlers and text analysis techniques to construct a network public opinion index of the Chinese financial market. Then, we explore the relationships between environmental policy uncertainty, network public opinion, and green innovation through the time-varying parameter structural vector autoregressive with stochastic volatility (TVP-VAR-SV) model. The transmission channels of environmental policy uncertainty to green innovation are depicted by selecting different timing of policy release. Our empirical study results show that the fluctuations of environmental policy uncertainty, network public opinion, and green innovation have time-varying characteristics. Furthermore, the findings reveal interactions among the three variables: 1) The environmental policy uncertainty can influence green innovation through network public opinion. 2) The environmental policy uncertainty has both inhibited and promoted effects on network public opinion and green innovation. 3) There are differences in the direction and the degree of impulse responses among the above three variables in the context of uncertainty shocks. Besides, managerial relevance and policy implications are also provided for decision-makers facing sustainable development challenges.