*4.2. Parallel Trend Analysis*

Parallel growth in treated and control groups is the key identifying assumption of using the DID method. Thereby, we assume that there is the same rate of change in the amounts of green patents applied by cities out of the two control zones as cities in the two control zones, except for the implementation of the TCZ policy. Figure 1 plots the difference in the volume of green patent applications of cities that entered two control zones relative to those cities that did not, using an 8–year window before and after TCZ policy. Figure 1 displays no significant differences in pre–trend, implying that the difference in green patent applications the years before TCZ policy is normalized to 0, and the parallel trends assumption holds. After the year of TCZ policy, the estimated coefficients of TCZ– year interaction terms are significantly positive, suggesting an increase in green patent applications in the treated cities relative to the control group.

**Figure 1.** Treatment–year interaction coefficient for city–level green patent applications. Notes: Figure presents coefficient and 95% confidence intervals on Tcz × year interactions from the regression of *Tcz* × year interaction terms, including city–fixed effects and year–fixed effects. TCZ policy was implemented in 1998 (current), the year before TCZ policy was excluded (pre1). Standard errors in parentheses are clustered at the city–year level.
