Multinational firms, green innovation and environmental policy
Joëlle Noailly
CIES
Graduate Institute, Geneva
Our Common Future Conference
Paris
July 9, 2015
dateTitle presentationAuthor
• Today, CO2 emissions produced by emerging and developing countries exceed emissions from the developed world
• The development and the diffusion of green technologies is critical to address this challenge
• Yet, green technologies are still owned by firms in the developed world
Motivation
Source: Dechezlepretre et al 2011
Multinational firms
• Key role of multinational corporations
(MNCs) for the diffusion of green
technologies
• Why?
› Key actors in R&D
› Important transfers of technologies to developing countries
• At the same time, critics of MNCs have often
accused them of exploiting pollution havens
› Transfer of polluting activities from home
to host countries with weak environmental
regulations
Research focus and outline
We investigate MNCs decisions to conduct green R&D abroad
1. Measurement of ‘green R&D offshoring’- Why is it important for technology transfers?
- What’s the empirical evidence?
2. Factors affecting MNCs decisions- What makes a host country attractive for MNCs?
- What are the policy implications?
3. MNCs innovation and pollution havens- How do pollution haven tendencies affect MNCs innovations decisions?
- What is the role of local environmental regulations?
1. MEASUREMENT OF GREEN R&D OFFSHORING
Why is it important for technology transfers?
What is the empirical evidence?
Green R&D offshoring
• The example of General Motors
› In November 2012, GM opened a new
R&D lab in Shanghai as part of its global
R&D network
› 300 scientists focus solely on electric
light-weight cars
› green innovation targeted to Chinese
market but not only
• MNCs are increasingly offshoring R&D
› Firms have R&D labs (inventors) in multiple countries
› In 2003, 44% of European MNCs R&D budget was spent outside Europe
› MNCs are increasingly opening R&D labs in emerging countries (UNCTAD, 2005)
MNCs R&D offshoring and technology transfers
• Host countries can highly benefit from green R&D investmentsfrom MNCs
• By opening an R&D lab in a host country, some of the MNCsknowledge will pass on to local firms
› Spillovers from R&D are largely local
› Geographic proximity and face-to-face interactions between scientists are essential for transfer of tacit knowledge
› Mobility of scientists
Empirical evidence
• Unique dataset on MNCs’ worldwide geographic distribution of green patenting activities
› Source: Orbis/Zephyr dataset linked to PATSTAT (2004-2009)
› 1,200 MNCs owning patents in 25 green technologies
› Extract inventor’s address to identify in which country the patent was invented
› Count of number of MNCs green patents invented outside the home country
Empirical evidence
• On average 17% of MNCs green patents portfolios have been invented abroad
• China, the US, and Germany are the top-destination countries
• China ranks first in Lights and Solar technologies. India is in top-10 in Wind technologies
2. FACTORS AFFECTING MNCs DECISIONS
- What makes a host country attractive for green R&D investments from
MNCs?
- What are the implications for designing policies to attract MNCs?
What are the motives of MNCs for offshoring R&D?
• General Motors - Why China?
K. Wale, CEO GM China
› Car market is booming
› Environmental concerns are rising
› China ranks 1st in number of PhD graduates
› Close to Asian firms working on battery research in Japan and Korea
• Literature (International Business and Management)
› Adaptive R&D: need for MNCs to adapt their products to specific local markets
› Technology-sourcing: to source local knowledge which is not available at home.
› Other factors: e.g. lower wages for scientists and engineers
Results
• Econometric estimation of the factors affecting the number of green patents invented by a foreign MNC in host country
Factors Data Estimated impact
Market size GDP (World Bank) +
Environmentalpolicy
Environmental Policy index (WEF) +
R&D intensity GERD (OECD)% Pop with tertiary education (OECD)Domestic stock of green patents
+++
Labour costs S&E wages differentials (UBS prices and earnings)
+
IPR IPR index (Ginarte and Park) +
Geography Distance (CEPII database)Common language
-+
conditional logit estimation
Policy implications
Attracting MNCs green patenting activities
• Need to create enabling local host country environment
• Host countries can design long-term policies aiming to enhance
› the market demand for green technologies (environmental regulations)
› the standing of the local scientific and educational base
› the context provided by the country's system of innovation for green technologies
3. MNCs INNOVATION AND POLLUTION HAVENS - How do pollution haven tendencies affect MNCs innovations decisions?
- What is the role of host countries’ local environmental regulations?
Pollution havens
• MNCs often accused of exploiting pollution havens
› Relocation of dirty industries to countries
with laxer environmental regulations
› What does it imply for MNCs’ innovation
activities?
• Recent economic literature emphasizes that pollution haven tendencies can lead to a self-reinforcing lock-in of innovation in dirty sectors (Hemous, 2012)
› developing countries with weak environmental regulations have a comparative advantage in dirty industries
› innovative activity concentrates in the exporting sector (dirty)
› this further reinforces the comparative advantage in dirty sectors
Empirical analysis
• Same dataset now disaggregated at sector level
› Pollution-intensity of various sectors (Levinson, 2008)
› Green patents per sector of use (Lybbert and Zolas, 2014)
› Relative comparative advantage per sector (Balassa index)
1. Pollution haven results.
- Less developed countries have a comparative advantage in dirty sectors and thereby lower levels of green innovation on average
- Stringent environmental regulations → reduce a country’s
comparative advantage in dirty sectors (shift to clean sectors)
2. Innovation results. Impact of stringent environmental
regulations on MNCs’ innovation per sector:
› Direct impact [80%] → stimulates green R&D by MNCs
› Indirect impact [20%] → induces a shift to clean sectors → more innovation into clean technologies [composition effect]
Conclusions
• MNCs are increasingly conducting green R&D abroad –also in emerging economies
› Host countries can benefit from MNCs R&D since R&D spilloversare largely local
› Yet, MNCs are most likely to conduct green innovation in host countries with:
◦ Good R&D infrastructure (supply of S&E)
◦ Rising market for environmental goods
• Stringent local environmental regulations play a pivotalrole:
› direct impact on MNCs level of green R&D
› induce a shift to cleaner sectors → avoid potential lock-in into
dirty innovation due to pollution haven effects
Thank you !