Eco-innovation for Economic Growth

Abstract: As the capacity of our planet to sustain the needs of future generations is deteriorating at an unprecedented rate, the role of innovation, research and development is becoming increasingly important. While the restrictions imposed on economic growth by the environment have been extensively examined and subject to much debate, the emerging concept of eco-innovation has not gained similar attention in the literature. With the assumption that eco-innovation provides vast opportunities to mitigate environmental impacts whilst acting as a driver for economic development, this thesis aims to depart from the methodological debate on the subject by econometrically examining its effects on GDP growth and contribute to a deeper understanding of this mechanism. Within the theoretical framework of an extended endogenous growth model to account for natural capital depletion, a regression model controlling for cross-sectional dependence was applied on panel data covering 32 OECD and BRICS countries from 1981-2014. In contrast to the initial hypothesis, the results indicate a significant negative effect of ecoinnovation on economic growth. However, several methodological deficiencies, including the approximation of eco-innovation with environmental patents, suggest that further studies adopting more comprehensive measures may lead to different results. More importantly, implicit from the shortcomings of this thesis is the call for a hastened maturity of eco-innovation academia and the urge for policies promoting an accelerated empirical establishment of this concept as a vital component in green growth strategies.