Abstract
Improving the business environment (BE) is crucial for sustainable regional development. Innovative city design characterized by innovation driven and knowledge intensive is an important way to shape and optimize urban BE. This study constructs a quasi-natural experiment based on China's Innovative city pilot (ICP) policy. The beneficial contribution of the ICP policy to the improvement of urban BE is empirically examined using asymptotic double-difference models and prefecture-level city panel data from 2004 to 2019. The results find that innovative urban design can effectively improve urban BE, and this policy effect still holds after a multidimensional robustness test. The mechanism test shows that optimizing the allocation of innovation factors is the influence mechanism of ICP policy to optimize urban BE. This mechanism includes four paths: technological innovation effect, government efficiency improvement effect, policy-leading effect, and human capital aggregation effect. Further analysis reveals that this policy effect is more pronounced in central and western regions and regions with higher administrative levels but does not differ significantly depending on the market potential. Furthermore, the ICP policy has a spatial spillover effect, which can improve BE levels in neighboring cities. The findings provide strong evidence for optimizing urban BE and promoting economic transformation and development through regional innovation policies.