How Does Green Finance Policy Promote City Green Growth? The Roles of Green Innovation and Entrepreneurship

Although green finance policies are widely recognized as important instruments for promoting city green growth, how they reshape the behavioral responses of economic actors remains insufficiently understood. This study examines green innovation and entrepreneurship within a common analytical framework, with the former representing a technological response and the latter a market-entry response. Drawing on a panel of 282 Chinese prefecture-level cities over 2011–2022, this study exploits the implementation of the Pilot Zone for Green Finance Reform and Innovation (PZGFRI) policy as a quasi-natural experiment and estimates its effect on green total factor productivity using a difference-in-differences design. The baseline estimate is 0.168, implying an effect equivalent to about 15.7% of the sample mean of GTFP, and this result is broadly comparable across robustness checks. The mechanism analyses further show positive policy effects on green innovation and entrepreneurial entry, with both lagged measures positively associated with subsequent city GTFP. Heterogeneity analyses suggest that policy effects are more pronounced in peripheral cities, cities with lower government efficiency, and those with lower pollution pressure. The results imply that green finance should be more precisely targeted, stimulate both technological and market-entry responses, and be adapted to local development conditions. These insights may also be relevant to developing economies seeking to turn policy-based financial support into sustained green growth.