Does green innovation crowd out other innovation of firms? Based on the extended CDM model and unconditional quantile regressions

TL;DR

This paper investigates how green innovation affects firm productivity compared to non-green innovation, revealing that green innovation's economic benefits vary by sector and productivity level, with notable advantages in high-pollution manufacturing firms.

Contribution

It extends the CDM model to compare green and non-green innovations' economic impacts and applies unconditional quantile regressions to reveal their varying effects across productivity levels.

Findings

Non-green patents mainly drive productivity gains.

Green patents have limited impact in non-heavy polluting firms.

In high-pollution sectors, both innovation types equally boost productivity.

Abstract

In the era of sustainability, firms grapple with the decision of how much to invest in green innovation and how it influences their economic trajectory. This study employs the Crepon, Duguet, and Mairesse (CDM) framework to examine the conversion of R&D funds into patents and their impact on productivity, effectively addressing endogeneity by utilizing predicted dependent variables at each stage to exclude unobservable factors. Extending the classical CDM model, this study contrasts green and non-green innovations' economic effects. The results show non-green patents predominantly drive productivity gains, while green patents have a limited impact in non-heavy polluting firms. However, in high-pollution and manufacturing sectors, both innovation types equally enhance productivity. Using unconditional quantile regression, I found green innovation's productivity impact follows an inverse U-shape, unlike the U-shaped pattern of non-green innovation. Significantly, in the 50th to 80th productivity percentiles of manufacturing and high-pollution firms, green innovation not only contributes to environmental sustainability but also outperforms non-green innovation economically.