Growing green: the role of path dependency and structural jumps in the green economy expansion

TL;DR

This paper investigates how countries expand their green economies through both incremental capability-based growth and strategic investments in new environmental technologies, highlighting the importance of structural jumps.

Contribution

It introduces the concept of high investment structural jumps as a complement to path dependency in green economic growth analysis.

Findings

Countries grow their green production baskets via capabilities and technological innovation.

Path dependency explains part of green growth, but strategic investments lead to structural jumps.

China exemplifies both incremental and jump-based green economic expansion.

Abstract

Existing research argues that countries increase their production basket by adding products which require similar capabilities to those they already produce, a process referred to as path dependency. Green economic growth is a global movement that seeks to achieve economic expansion while at the same time mitigating environmental risks. We postulate that countries engaging in green economic growth are motivated to invest strategically to develop new capabilities that will help them transition to a green economy. As a result, they could potentially increase their production baskets not only by a path dependent process but also by the non path dependent process we term, high investment structural jumps. The main objective of this research is to determine whether countries increase their green production basket mainly by a process of path dependency, or alternatively, by a process of structural jumps. We analyze data from 65 countries and over a period from years 2007 to 2017. We focus on China as our main case study. The results of this research show that countries not only increase their green production baskets based on their available capabilities, following path dependency, but also expand to products that path dependency does not predict by investing in innovating and developing new environmental related technologies.