Environmental Provisions in Trade Agreements and Corporate Green Innovation Theory and Mechanisms

Green innovation is vital for the sustainable economic development of countries. One effective way to protect the environment and promote sustainable economic development is through corporate green innovation. This paper uses data from Chinese listed companies and the Trade and Environment Database, which covers the period from 2013 to 2024, to examine how environmental regulatory provisions in trade agreements affect green innovation among Chinese enterprises and the underlying mechanisms. The study finds that environmental provisions in trade agreements can greatly encourage firms to innovate in a green way. This conclusion remains unchanged after a series of robustness tests. Analysis of the mechanisms reveals that environmental provisions in trade agreements inhibit firms’ green innovation through compliance costs, while promoting it through innovation compensation effects. However, the latter outweighs the former. Analysis of heterogeneity suggests that environmental legislation has a greater impact on green innovation within highly innovative, heavily polluting, non-state-owned, unauthorised firms.