How does innovation efficiency contribute to green productivity? A financial constraint perspective

Significant economic investigation is needed to underpin a successful energy transition, pollution control and achievement of the Sustainable Development Goals (SDG’s). With the encouragement of SDG’s and the pressure of government environmental regulation, one of the key areas tackled by mitigating the detrimental impact on SDG’s is the role of innovation. This paper uses Green Total Factor Productivity (GTFP) calculated by DEA- Malmquiste Luenberger method to measure the joint economic and environmental efficiency, and raises that innovation efficiency is a good indicator that can better solve the under and over-estimated effect caused by innovation input and output. We find that innovation efficiency has a positive and significant impact on GTFP with the magnitude of 0.227. In addition, the contribution of innovation efficiency on GTFP is significant different for firms cleaner and dirty production industries, for cleaner production the coefficient is 0.424, while only 0.021 for the impact on pollution intensive industries. We further uncover that the financial constraint is the mechanism that impacts on the relationship between innovation efficiency and GTFP. Financial constraint negatively impacts on the relationship between innovation efficiency and GTFP, and the impact is −0.396 for all the firms. Specifically, financial constraint decreases the GTFP through restricting the innovation efficiency for cleaner production firms by −0.493, and −0.559 for pollution intensive firms. These empirical findings give clear policy implications: rather than continually devoting in innovation input, the firms and policy makers should consider the innovation efficiency and the green finance development.