Assessing the Effects of Countries’ Environmental Policy Stringency on Private Sector Eco-Innovation Performance

Abstract

The increasing global focus on environmental issues has led governments and public institutions to enforce stricter regulations in recent decades, pushing the private sector towards eco-friendly solutions and innovations. While some scholars posit that stringent environmental policies cause polluting industries to relocate to countries with less rigorous standards, other research emphasizes that government pressure is crucial for achieving environmental goals and reducing private-sector impacts.

This study assesses how environmental policy stringency influences eco-innovation performance in firms headquartered within a country. Using descriptive statistics and data from the COR&DIP database and the Environmental Policy Stringency (EPS) index provided by the OECD, the study finds a small positive effect of policy stringency on eco-innovation performance. It also underscores the importance of accurately analyzing historical environmental policies to gauge their impact on private sector innovation. The findings contribute to the literature on national environmental policies and eco-innovation, offering valuable insights for companies navigating environmental regulations and policymakers developing effective regulations to encourage green technologies.