Green innovation and green Imports:Links between environmental policies, innovation, and production

This paper addresses the claim that environmental policies stimulate domestic economies. The claim is parsed into two sequential parts: the effect of policies on innovation and the effect of that innovation on resulting manufacturing production. Each of these activities -- innovation and manufacturing -- can either take place at home or abroad, and where they take place determines the consequences for the domestic economy. The empirical evidence is based on measures of policy, patent activity, and trade in the renewable energy sector of 31 OECD countries between 1988 and 2003. The results from regression analysis suggest that renewable energy policies have had some success in stimulating domestic economies. While renewable energy policies are associated with little domestic innovation outside of Germany, Japan, and the United States, they do boost the adoption of foreign technologies overall. In turn, when patenting occurs the results detect an increase in manufacturing production of renewable energy technologies as well as a rise of the country's international competitiveness through exports.