Green Innovation Through Artificial Intelligence: Sectoral and Regional Perspectives of China

ABSTRACT The rapid adoption of artificial intelligence (AI) has transformed manufacturing and promotes firms' green innovation. Concurrently, the significance of green innovation plays an important role in supporting firms' environmental transformation. Against this backdrop, the present study investigates the dynamic relationship between AI and firms' green innovation (FGI), with a specific focus on Chinese manufacturing firms. The results show that manufacturing companies with extensive AI adoption demonstrate heightened levels of green innovation. Furthermore, the study explores the heterogeneous impact of AI on FGI across different types of firms and regions. Notably, AI has a stronger effect on FGI within the eastern region and significantly drives green innovation in non‐SOE, high‐tech, and non‐labor‐intensive firms compared to their counterparts in SOE, labor‐intensive, and non‐tech industries. Additionally, AI contributes to the enhancement of FGI by stimulating investments in green research and development (R&D), reducing operational costs, and facilitating digital transformation initiatives. The study also illuminates the influence of environmental regulations in amplifying AI's promotion of FGI in manufacturing firms. Finally, based on the pragmatic assessments, valuable policy implications are discussed.