Abstract The economic impact of environmentally friendly innovations, and their knowledge externalities on productivity received an increasing attention from the research community. Although there are numerous studies focusing on this issue, to our knowledge, there is no systematic literature review so far able to provide a complete outlook on the state-of-the-art, and the directional change in the theoretical and empirical studies exploring the relationship between environmental spillover effects and firm productivity. In order to bridge this gap, the paper aims to identify empirical evidence concerning the public policy strategies introduced to support diffusion of environmentally friendly technologies. The findings of the undertaken systematic literature review reveal that innovative activity in environmental issues produces important knowledge spillovers. In the light of the findings, the study advocates that: (a) Public subsidies alone are not sufficient enough to deliver desired outcomes; (b) Implementation of a coherent policy mix is critical to achieve sustainable economic growth; (c) The policy mix should particularly contain a supportive cooperation strategy.

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