Enhancing firms’ innovation persistence in the circular economy through government-supported green supply chain demonstrations: cost leadership or differentiation?

ABSTRACT

Government support is pivotal in guiding firms towards adopting green supply chain (GSC) practices aligned with the circular economy. Our study addressed this critical issue through a quasi-natural experiment of GSC demonstration in China. We conducted a difference-in-differences estimation to assess the variation in the persistent innovation capabilities between the treatment and control groups. The results indicate that the GSC demonstration, as an external policy change, stimulated the development of firms’ persistent innovation capabilities. These capabilities have positive effects on both innovation input and output dimensions. Additionally, we explored the interaction between firms’ competitive strategies and government support. Findings indicate that differentiation strategies have a stronger positive impact on innovation persistence, while cost leadership strategies weaken this link. These results emphasize the government's critical role in fostering GSC adoption, offering implications for effective government-business collaboration towards a circular economy and sustainable planning across social, environmental, and technological innovation factors.

KEYWORDS:

• Circular economy
• ‌cost leadership
• green supply chain
• government
• innovation persistence
• differentiation

Data availability statement

The data that support the findings of this study are available from the corresponding author, Lujie Chen, upon reasonable request.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors gratefully acknowledge the financial support by the Humanities and Social Science Fund of Ministry of Education of China [grant number 21YJA630029] and Natural Science Foundation of China Young Scientist Fund [grant number 71902159].