Economic policy uncertainty and the green market: interactions between R&D investments and consumer demand for environmentally friendly products in China

This paper examines the effect of economic policy uncertainty (EPU) on consumer behavior and market demand of the environmentally friendly products (EFP) in China. It goes further to look at how research and development (R&D) investments have influenced this relationship. The panel fixed effects regression analysis of Chinese A-share market-listed companies (2000–2023) shows both the difficulties and opportunities that emerged as a result of EPU. The findings reveal that EPU has a strong effect on the demand of EFP and R&D. In particular, EPU was observed to influence the demand of EFP in a negative way, which puts under the spot its harmful effect on the market dynamics. On the other hand, there is a positive impact of EPU on R&D, which implies that companies can invest more in R&D to respond to policy uncertainty as a mechanism to overcome instability. The findings also indicate that R&D is positively correlated with EFP, which may imply that the higher the amount of investment in R&D, the higher the availability and appeal of green products. Moreover, interactions between EPU and RD reveal an additional effect, suggesting that R&D investments mitigate some of the adverse impacts of policy uncertainty on EFP. The findings indicate the need for government policies that promote both financial incentives for green initiatives and robust intellectual property protections to reduce the negative effects of EPU.