Is Relationship between Carbon Emissions and Innovation Nonlinear? Evidence from OECD countries

Abstract

Our paper fills a gap in the literature on the relationship between innovation, carbon emissions, ownership structure, and institutional framework quality. We test the linear and nonlinear relationships between research and development (R&D) expenditures and carbon emissions by considering ownership structure types and institutional setting variables. We use parametric and semiparametric regressions, on a sample of 32 member countries of the Organization for Economic Cooperation and Development (OECD), over the period 2015–2020. Our parametric results confirm the inverted U-shaped relationship found in previous research, between innovation and carbon emissions, as well as the significantly positive effect of an institutional presence in ensuring an energy transition. Moreover, semiparametric regressions suggest, first, that there are many peaks, which confirms the dual relationship between the variables. Second, they highlight a positive association between foreign investors and carbon emissions. Third, the introduction of the institutional quality variable confirms an inverted u-shaped relationship between carbon emissions and innovation. Globally, our study raises awareness among both public authorities and investors of the challenges of environmental degradation and its adverse effects on the climate.