The impact of financial risk on green innovation: Global evidence

Abstract

This research examines the effects of financial risk on green innovations by adopting the panel Poisson model for 99 countries. We employ environmental management innovations as a proxy for green innovations and financial risk index as the main explanatory variable, documenting strong evidence that financial risk presents significantly negative impacts on green innovations by decreasing patent applications related to environmental management technologies. Moreover, we conclude that increased financial risk hinders a country's performance of green innovation by restricting foreign direct investment (FDI) inflows and foreign trade. Lastly, financial risk considerably affects the development of green innovation in democracy nations and countries with low political risk, but not in non-democracy countries and countries with high political risk. In light of this, our research should help policymakers in many nations develop workable currency and valuable policies from the perspective of financial risk for enhancing their green innovation level and sustainable development.