Does environmental regulation indirectly induce upstream innovation? New evidence from India. What's new in the economics of innovation? Theory, empirics and public policy
Description
Exploiting a quasi-natural experiment involving the imposition of a ban by Germany in 1994 on an input (“azo dyes”) used by the Indian leather and textile industries, we estimate the indirect impact of this environmental regulation on the innovation activities of upstream (dye-producing) firms in India and examine how it varies by firm characteristics such as size and ownership. We find robust evidence of a significant increase (11–61%) in innovation expenditure by dye manufacturers in response to the ban on azo dyes. Additionally, we find: (i) an increase in technology transfer amounting to 1.2–2.5 times that of internal R&D; (ii) an increase in innovation expenditure with firm size; (iii) domestic firms invest more in technology transfer relative to R&D, whereas foreign firms focus primarily on the latter; and (iv) a decrease in innovation investment by downstream firms, suggesting a possible substitution effect in aggregate innovation toward upstream firms. Our results are consistent across a variety of estimation methods and robustness checks.
Copyright Date
January 2016
Publication Date
1-1-2016
DOI
10.1016/j.respol.2017.03.004
Keywords
Azo-dyes ban, Innovation, R&D expenditure, Technology transfer, Dye-producing firms, India
Conference
1-2 December, 2016, World Trade Center, Grenoble
