The Relationship between Green Investment and Eco-Innovation in Europe

Abstract: It is universally acknowledged that environmental protection has become one of the most pressing global issues in the last decades. Green technology is indispensable to finding less damaging alternatives, and no innovation is carried out without investment. In contribution to environmental economics, the purpose of this thesis is to provide empirical evidence on whether green investment has a relationship with eco-innovation in the European Union (EU). The study draws on a theoretical framework that combines Romer's endogenous growth theory and the Ecological Modernization theory. Based on this framework, the hypothesis expected is a positive impact of green investment on eco-innovation. The analysis utilizes data on environmental protection investment as a measure of green investment, and environmental-related technology patents as a measure of eco-innovation. A panel data analysis is conducted from the years 2013 to 2019 on EU countries, employing random effects model to regress the relationship between the two variables. The results provide statistically significant evidence that green investment has a positive impact on eco-innovation.