The role of multi-level policy interactions in the formation of new environmental firms: evidence from the Yangtze River Delta in China

This paper investigates how multi-level policy interactions within an integrated region affect the formation of new environmental firms with the empirical case of the Yangtze River Delta in China. We define vertical interactions based on the contradiction between the grand narratives of provincial-level policies and the specific schemes of city-level policies. We define horizontal interactions based on policy cohesion and coordination among cities. We apply a text mining approach to 380 policy documents and construct the Policy Modelling Consistency index, which comprises 51 sub-criteria, to indicate policy interactions. The empirical results provide some interesting evidence for the ongoing debate on green transition. First, policy instruments matter more than policy goals at the subnational level. This highlights the need to distinguish between schemes and narratives of policies at different levels. Second, industrial policy is more efficient and effective than environmental policy. The backward push of environmental policy is context-sensitive, while the forward pull of industrial policy is more robust. Third, while there is a consensus that the peripheral locations need policy support to attract new firms, our findings emphasize that active policy interactions are more effective than strong policy intervention.