Is economic complexity an enabler of environmental innovation? Novel insightful lessons from European region

Abstract

PurposeThis paper empirically examines the influences of economic complexity performance on environmental innovation implementation.Design/methodology/approachThe research is based on four measures designed to assess the effectiveness of environmental innovations in 24 European countries, including the percentage of enterprises implementing environmental innovation investment (% of surveyed firms), the percentage of enterprises implementing environmental innovation activities (e.g. implementation of resource efficiency actions, sustainable products or ISO 14001 certificates) measured, a number of enterprises having new ISO 14001 registration and a number of environmental innovation related patents. After conducting various tests for longitudinal correlations and asymmetry of the studied series, we examine the relationship between product proximity, economic complexity and environmental innovation (EI) implementation using the panel-corrected standard error model (PCSE) model in the following section. The feasible generalized least squares (FGLS) model is employed to further verify our findings by taking into account heteroscedasticity. An application of the two-step generalized mixed model (GMM) is considered to resolve an endogeneity issue. In addition, the dynamic fixed-effects estimate (DFE) estimator is applied to the autoregressive distributed lag (ARDL) method in order to calculate both the short-run and long-run effects. As indicated by Ha (2022a, b) and Ha and Thanh (2022), the DFE-ARDL method can be used to identify both time-fixed effects and country-fixed effects.FindingsThe authors provide empirical evidence to propose the mechanism through which economic complexity encourages the implementation of environmental innovation through favorable impacts of economic complexity on environmental innovation investments of firms and governments and the public's awareness regarding the importance of environmental innovations.Practical implicationsThis research provides important implications for policymakers in promoting environmental innovations.Originality/valueThe study is the first to empirically examine economic complexity performance's influences on environmental innovation implementation. It is also the first to investigate the importance of institutional quality in enhancing the influence of economic complexity on environmental performance.