Economic growth targets and green technology innovation: mechanism and evidence from China

Economic growth target management is a government behavior that the authorities formulate at a specific time and direct the allocation of resources. Despite the importance of socio-economic development, economic growth targets have caused some potential hazards to the environment that cannot be ignored. Using a panel dataset of 278 prefecture-level cities in China over the period 2004-2019, the study employed a two-way fixed effects model to verify the inhibition effect of economic growth targets on green technology innovation (GTI). The results indicated that economic growth targets and hard constraints tended to have a significantly negative effect on GTI. More importantly, the results of the mediation effect test suggested a positive correlation between economic growth targets and the government fiscal expenditures and market segmentation, and both mediators played an intermediary role in the influence of economic growth target constraints restraining GTI. Other findings showed that the economic growth targets of prefecture-level cities had different impacts on GTI, which resulted from the different resource endowments, geographic locations, or periods. Overall, the results suggest that policymakers should lower the economic growth targets and use soft constraints to set them. The conclusions of this paper are applicable to policymakers not only in China but also other economies that regularly set economic growth targets.