Empirical Determinants of Innovation in European Countries: Testing the Porter's Hypothesis

Makrevska Disoska, Elena and Tonovska, Jasna and Toshevska-Trpcevska, Katerina and Tevdovski, Dragan and Stojkoski, Viktor (2023): Empirical Determinants of Innovation in European Countries: Testing the Porter's Hypothesis.

Abstract

We investigate the interplay between innovation and productivity, emphasizing the role of environmental regulations on the innovation behaviours of European firms. Anchored in the Porter hypothesis, which proposes that environmental regulations can drive technological innovation and bolster commercial competitiveness, we utilize the CDM model (Crépon, Duguet, and Mairesse, 1998) for in-depth analysis. Our approach begins by pinpointing the factors that shape firms' decisions to innovate and the associated investments, employing the Heckman correction model. Subsequently, we adopt the three-stage least squares (3SLS) methodology to analyse both innovation outputs and firm productivity in tandem. Drawing data from the Community Innovation Survey (CIS) 2018, our structured examination unveils how diverse innovation drivers can elevate labor productivity in varied institutional landscapes. By contrasting the performance of South Europe (comprising Greece, Spain, Portugal) and Central Eastern Europe (countries like Bulgaria, Estonia, Hungary) against a German benchmark, our research offers a nuanced understanding of environmental regulations' influence on innovation and productivity across European contexts.

• Item Type: MPRA Paper
• Language: English
• Keywords: innovation, productivity, CDM model, CIS, Porter`s hypothesis
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C36 - Instrumental Variables (IV) Estimation; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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