A system dynamics model of green innovation and policy simulation with an application in Chinese manufacturing industry

Abstract Green innovation is fundamental for the achievement of a "win-win" state between economic growth and environmental protection. Pivotal to maintaining the vitality of green innovation is the effectiveness of government policies. First, this paper develops a theoretical model to capture the structure of a green innovation system, incorporating five subsystems: government, environment, technology, economy, and energy subsystems. It further explores the transmission effects of the five subsystems of green innovation systems between government policy-related actions and green innovation. Second, a causal loop diagram of green innovation is constructed to analyse how government fiscal, tax, financial, technical, and environmental policies influence green innovation through these subsystems and other relevant variables. Third, taking the Chinese manufacturing industry as an example, this work builds a stock and flow model that can more clearly reflect the relationships among all variables in a green innovation system. Then, it calculates the quantitative relationship between different variables in the model. Model effectiveness is verified by historical data and sensitivity analysis. Finally, based on the above work, this study simulates the evolution of the green innovation system in the Chinese manufacturing industry by changing the variables of fiscal, tax, financial, technical, and environmental policies. The results show that different types of policies and differentiated implementation strengths have varied impacts on the green innovation performance of the manufacturing industry. There is a synergistic relationship between different types of policies, implying a higher-level effectiveness of policy orchestration compared to the use of separate policies. This paper generates valuable implications for the government for formulating and optimizing green innovation policies.