Determinants of trade with solar energy technology components: evidence on the porter hypothesis?

Abstract

Studies analysing renewable energy (RE) market development usually investigate electricity capacity or investment. Characteristics, roles and determinants of trade with RE system components remain blurred. Policies are important in promoting RE utilization and innovation. Yet, their effect on determining exports remains ambiguous. The Porter hypothesis and the lead-market literature argue that environmental regulation leads to comparative export advantages. Empirical studies, however, reach diverging conclusions, rarely focus on the RE-sector and use broad proxies of environmental regulation.Focusing on solar energy technology components (SETCs), we believe this is the first study describing structure and development of international trade and estimating the role of RE policies on determining trade flows. We empirically estimate a gravity trade model using Poisson-Pseudo-Maximum-Likelihood (PPML) estimation to test the role of RE policies and trade barriers on SETC exports. We use panel data representing annual bilateral trade flows of 21 OECD countries exporting SETCs to 118 importing countries between 1999 and 2007.We find a rapidly growing market with trade dominated by Europe. The study supports the Porter and the lead-market hypotheses as early adopters of RE policies gained a comparative advantage. Analysing the importer side, the study suggests that regulatory policies and import tariffs determine SETC export flows.