The impact of gross capital formation on the relationship between Green Innovation and Green Development.... Implication for GDP: The relationship between green innovation and economic g
Research problem
Environmental sustainability is crucial for achieving the Sustainable Development Goals (SDGs) amid increasing environmental challenges linked to economic growth Balancing economic, social, and environmental needs is essential for protecting natural resources while fostering development Recent industrial expansion and technological advancements have led to various global environmental and climate-related issues, highlighting a significant gap in innovation concerning environmental care Green innovation aims to address these challenges by minimizing the negative impacts of development on the environment However, there remains a lack of comprehensive understanding regarding the relationship between green innovation and green development in promoting global environmental sustainability.
Green innovation is essential for achieving environmental sustainability, as it fosters the development of products, services, and technologies that provide both economic and ecological benefits Government policies play a crucial role in encouraging small and medium-sized enterprises (SMEs) to adopt eco-friendly practices, particularly in developing countries where such initiatives can lead to significant shifts in manufacturing processes To effectively promote green innovation, government intervention is necessary, alongside fostering external collaboration among firms The increasing demand for green products highlights the importance of consumer preferences in driving SMEs toward sustainable practices Research indicates that companies leveraging green infrastructure tend to outperform their competitors by swiftly addressing customer needs Internal factors, including management commitment and supplier relationships, significantly influence the adoption of green technologies, while a strong human resource management culture enhances innovative capabilities However, disparities between developed and developing nations present challenges, as the latter may lack the necessary resources to fully embrace green innovation To bridge this gap, both groups of countries must implement supportive legislative measures to foster sustainable growth.
As the largest developing nation, China is focused on creating a viable model for green development and providing solutions to other countries aiming to reduce emissions (Tang & Zhang, 2023) To fulfill its carbon reduction responsibilities, China is actively implementing various initiatives, highlighted by the 2015 Opinions on Accelerating the Construction of Ecological Civilization, which emphasized the pursuit of "green development." The Third Plenary Session of the 18th CPC Central Committee introduced the principles of "people-oriented, resource conservation, and environmental protection" as the foundation for green growth Since then, low-carbon and green development have become central to China's economic strategy The 2022 report from China's 20th National Congress reaffirmed the commitment to "promoting green development and harmonious coexistence between man and nature," underscoring the importance of exploring effective pathways for achieving green growth.
This study aims to explore the global relationship between green innovation and green development, revealing how changes in green innovation influence green development Utilizing the GMM approach, we delve deeper into this connection and examine its variability across nations by considering differentiating factors such as digital transformation (DTF), education (EDU), and gross capital formation (GCF) Furthermore, we analyze the impact of green innovation on the relationship between green development and economic growth, a subject previously addressed in various studies (Tawiah et al., 2021).
Research aims and questions
This study aims to explore the influence of green innovation on sustainable development while also examining its relationship with economic growth The research seeks to address key questions regarding these dynamics.
Question 1: How does green innovation affect green development?
Question 2: Do green innovation’s influences on green development differ when considering a country's GCF, EDU and DTF?
Question 3: How do green innovation affect the relationship between green development and economic growth?
Our research utilizes information and statistical data from OECD Data and the World Bank Data Indicator By sorting and compiling this data, we have created a comprehensive database consisting of 3,089 observations from 161 countries spanning from 1975 to 2022 This database is instrumental in calculating baseline results and interaction terms, which we subsequently compare to our hypotheses.
Regression analysis using the GMM approach revealed a positive correlation between increased green innovation and green development This relationship is particularly significant in established and emerging nations with high levels of GCF, EDU, and DTF Furthermore, the findings support the notion that a high level of green innovation enhances the positive effects of green development on economic growth These insights offer valuable implications for policymakers and suggest avenues for future research in related areas.
Our research makes significant contributions to existing literature by first enhancing the understanding of how green innovation impacts various factors, providing a valuable resource for future studies on green development This enables researchers, including those referenced by the IPCC and others, to compare our findings with previous work Secondly, while the link between green development and economic growth is often explored, there is a notable gap in literature regarding the role of green innovation, gross capital formation, and the influence of education and digital transformation in this context.
LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
Green Development
Green development, also known as sustainable development, is gaining global prominence as it seeks to balance economic growth with environmental protection and social well-being This holistic approach aims to create a harmonious relationship between progress and the preservation of our planet's resources.
The Brundtland Commission's influential report, "Our Common Future," introduced the concept of sustainable development, emphasizing the necessity for current generations to meet their needs without compromising the ability of future generations to meet theirs (Brundtland, 1987) This landmark document laid the groundwork for global discussions on the interconnectedness of economic, environmental, and social issues, shaping the trajectory of green development research.
The United Nations Sustainable Development Goals (SDGs), established in 2015, serve as a crucial framework for international green development efforts Comprising 17 goals and 169 targets, the SDGs aim to tackle issues such as poverty reduction, renewable resources, sustainable cities, climate action, and biodiversity conservation These goals have prompted extensive research and policy discussions at both national and international levels on effective strategies for achieving these targets Influenced by the Brundtland report, the SDGs have significantly shaped the discourse on sustainable socioeconomic development for current and future generations.
Research by Fay (2012), Volz (2018), Taghizadeh-Hesary & Yoshino (2019), and Dogaru (2021) highlights the significant benefits of green development This sustainable approach aims to mitigate climate change effects, safeguard the environment, and enhance the efficient utilization of natural resources By integrating green technology, green finance, and supportive policy frameworks, countries can effectively work towards achieving the Sustainable Development Goals (SDGs).
Green Innovation
Green innovation, or eco-innovation, focuses on creating and implementing new technologies that reduce environmental impact and promote sustainability It entails the systematic incorporation of eco-friendly practices across all organizational and societal activities This approach is applicable across diverse sectors, including energy, transportation, agriculture, waste management, and construction.
2012) It plays a pivotal part in transitioning sectors and societies toward a more sustainable future state.
The UN Environment Programme (UNEP) emphasizes the importance of green innovation through its studies and reports, particularly the "Green Economy Report," which reveals the potential of green technologies and clean energy sources to foster sustainable financial growth This report highlights that investing in green innovation is crucial for achieving the United Nations' Sustainable Development Goals (SDGs) and demonstrates how promoting green innovation can facilitate integrated socioeconomic development while ensuring environmental protection.
Research highlights the significant impact of green innovation on various sustainability outcomes, particularly through the introduction of electric vehicles and alternative fuel technologies, which can reduce air pollution and dependence on gasoline-powered vehicles Additionally, green innovation fosters sustainable agricultural practices, such as precision and organic farming, enhancing resource efficiency while minimizing pesticide and fertilizer use Innovative recycling and waste-to-energy technologies contribute to a circular economy by reducing the environmental impacts of waste disposal In construction, green innovation focuses on eco-friendly materials and energy-efficient designs, which help lower CO2 emissions Beyond environmental benefits, investments in green innovation can lead to increased market competitiveness, operational efficiency, and financial performance for organizations It also has the potential to create jobs and stimulate local economies, particularly in the renewable energy sector Ultimately, green innovation offers a dual advantage by addressing ecological challenges while promoting economic growth and job creation, aligning environmental protection with socioeconomic development goals.
The relationship between green innovation and green development
The relationship between green innovation and sustainable development goals (SDGs) is a crucial area of research, focusing on how innovative practices and technologies drive environmental improvements Green innovation encompasses both scientific advancements and non-technological breakthroughs that significantly impact the environment through the development and application of new tools The primary aim of green innovation is to enhance productivity by efficiently utilizing natural resources, minimizing waste and energy consumption, discovering new value creation opportunities, and optimizing resource distribution (OECD, n.d.).
Numerous studies over the past few decades have explored the impact of renewable energy technology on global green development The importance of green innovation in addressing environmental issues and fostering sustainability is widely acknowledged According to the Intergovernmental Panel on Climate Change (IPCC, 2014), green innovation is crucial in combating global warming and facilitating the transition to a carbon-neutral economy.
A study by Ulucak (2020) highlights the critical role of environmental technology in advancing green development among BRICS nations The research reveals that eco-friendly technologies significantly reduce both total and production-based CO2 emissions, thereby fostering green development Ultimately, these green innovations are essential for lowering greenhouse gas emissions and enhancing environmental sustainability.
A study by Geissdoerfer et al (2017) highlights the significance of the circular economy in relation to green innovation and development The research emphasizes that promoting innovative green solutions is essential for transitioning to an economic model that minimizes resource consumption, waste generation, and environmental harm It underscores the need for new strategies and corporate practices to achieve the circular economy's objectives, which aim to foster environmental protection while ensuring sustainable resource management and advancement.
The study underscores the necessity of innovative strategies and strategic business decisions, asserting that the success of circular economy objectives and the promotion of green development depend on new perspectives from all stakeholders involved.
Numerous studies indicate that green innovation is crucial for advancing green development, as it effectively reduces CO2 emissions, enhances labor productivity, generates new economic opportunities, and improves overall quality of life These factors collectively contribute to sustainable development efforts (Irandoust, 2016; Lin & Zhu, 2019; Yu &).
Research papers highlight the significant impact of green innovation on green development across multiple levels, including firm, regional, and national contexts The positive correlation between these two concepts underscores the importance of green innovation in fostering sustainable technologies, processes, and practices Our study aims to expand this understanding to a global scale and proposes a set of hypotheses to explore this relationship further.
—> Hypothesis 1: Green innovation has a positive and significant impact on Green development
Due to variations in socioeconomic situations, technical capabilities, and legislative frameworks, the effects of green innovation on green development might differ across developed and developing countries.
Green innovation plays a crucial role in advancing sustainable development in developing nations, which often face significant environmental challenges such as pollution, resource depletion, and climate change impacts By fostering eco-friendly practices, promoting resource efficiency, and implementing sustainable technologies, green innovation can effectively tackle these pressing issues Research indicates that it can enhance environmental outcomes, reduce greenhouse gas emissions, increase energy access, and strengthen climate resilience in poorer countries (UNEP, 2016) Furthermore, by supporting the growth of green businesses and industries, these innovations can contribute to poverty alleviation, job creation, and overall economic growth (World Bank).
Inadequate institutional frameworks, limited technological capabilities, and insufficient financial resources in developing countries can significantly hinder the scope and pace of green innovation, ultimately affecting their green development efforts (Anholon et al., 2020).
Wealthy nations possess greater financial resources, advanced technology, and robust legislative frameworks that foster green innovation and growth This innovation leads to a reduced ecological footprint, enhanced resource efficiency, and improved environmental performance Research shows that developed countries have embraced energy-efficient practices, sustainable transportation, renewable energy technologies, and circular economy principles, effectively decoupling economic growth from environmental degradation As a result, these advancements contribute to lower carbon emissions and improved air and water quality Additionally, green innovation enhances economic diversification, competitiveness, job creation, and export potential within the green sector in industrialized nations.
Wealthy nations play a crucial role in promoting green innovation and sustainable growth in developing countries through technology transfer, funding, and capacity-building initiatives These partnerships accelerate the adoption of environmentally friendly practices, aiding poorer nations in their transition to sustainable development (UNEP, 2011).
In summary, both developing and developed countries experience unique impacts from green innovation on green development, presenting both opportunities and challenges For developing nations, green innovation can address environmental issues, stimulate economic growth, and reduce poverty, although they may face limitations in capacity and resources Conversely, in developed countries, green innovation fosters increased competitiveness, economic diversification, and environmental improvements, supported by robust technological capabilities and effective governmental frameworks Additionally, these nations significantly contribute to technology transfer and capacity-building initiatives that enhance green development in less developed countries.
—► Hypothesis l.a: The impacts of green innovation on green development can vary between developing nations and developed countries due to differences in socio-economic conditions, technological capabilities, and policy frameworks.
The impact of gross capital formation on the relationship between Green Innovation and Green Development
Effective resource allocation towards tangible assets is essential for promoting environmentally-friendly technology and infrastructure, as well as supporting sustainable practices and economic growth Research has demonstrated that green innovation is positively influenced by gross capital creation For example, a study by Rahman & Ahmad (2019) explored the relationship between carbon emissions and gross capital creation in emerging economies, revealing that higher investments in physical assets correlate with reduced carbon emissions, suggesting that capital expenditure can enhance the adoption of green technologies and practices.
Research highlights the significant role of gross capital creation in fostering sustainable infrastructure development An analysis by Song et al (2020) examined how infrastructure spending impacts long-term growth in emerging nations Increased investment in green infrastructure—such as energy efficiency projects, public transit systems, and waste management—can lead to reduced resource consumption, enhanced living standards, and improved environmental conditions.
Research and development in green innovation can be significantly supported by gross capital formation A study by Yin & Wang explored the relationship between environmental innovation in businesses and the creation of gross capital, highlighting the importance of financial investment in fostering sustainable practices.
A study conducted in 2018 found that companies investing in environmental research and development (R&D), which fosters the adoption of green technologies and practices, are positively correlated with increased investments in physical assets.
Gross capital formation plays a crucial role in promoting job creation and economic growth within the green sector Research by Lilliestam, Patt, and Bersalli highlights the positive effects of green investments on employment and overall economic development.
Investing in green sectors like clean energy and energy-efficient technologies can drive economic growth, foster sustainable development, and create job opportunities.
The connection between innovative thinking and ecological growth is significantly influenced by gross capital production in both developed and developing nations By effectively allocating resources towards physical assets like green infrastructure and research and development initiatives, we can promote the adoption of green technologies, accelerate economic growth, mitigate negative environmental impacts, and encourage ethical practices This leads us to propose the following hypothesis.
—> Hypothesis 2: Gross capital formation has a significant impact on the relationship between Green Innovation and Green Development.
The impact of education on the relationship between Green Innovation and Green Development
Education plays a crucial role in connecting green innovation with development across both developing and affluent countries It equips individuals with the knowledge, skills, and insights necessary to foster and implement sustainable practices and technologies.
Research shows that education plays a crucial role in fostering green innovation and sustainable development A 2019 study by Leal Filho et al highlighted the significance of both formal and informal educational approaches in promoting green innovation as part of equitable growth The findings revealed that education enhances public awareness of environmental issues and cultivates a sense of responsibility towards the ecosystem, equipping individuals with the knowledge and skills needed to create and implement eco-friendly solutions.
Research has demonstrated the significant influence of education in promoting innovative green practices and ethical procedures across various industries Koster (2017) explored the effect of educational institutions on entrepreneurial sustainability and discovered that individuals with higher education levels are more likely to adopt sustainable business strategies and environmentally friendly technologies in their ventures.
Education plays a crucial role in driving demand for eco-friendly products and services, influencing consumer behavior significantly A 2012 study by Videras et al found that individuals with higher education levels are more likely to support green initiatives and purchase environmentally friendly goods This suggests that education can effectively foster consumer demand for sustainable development and promote green innovation.
Education likewise possesses the power to influence governmental decisions and foster the conditions necessary for green development and innovation Lang et al
Education plays a crucial role in developing governance frameworks and sustainability-focused policies, as highlighted in 2012 research This study underscores how knowledge empowers individuals to advocate for ethical practices and engage in decision-making at various levels, from local communities to global platforms By providing essential information, skills, and awareness, educational institutions can influence consumer behaviors, foster green innovation, promote sustainable practices, and contribute to the creation of policies aimed at a more environmentally responsible and equitable future Therefore, we propose the following hypothesis:
—* Hypothesis 3: Education has a positive impact on the relationship between Green Innovation and Green Development.
The impact of digital transformation on the relationship between Green Innovation and Green Development
Digital transformation represents a profound change that affects all facets of society, organizations, and industries through the adoption of advanced digital technologies This includes the integration of cutting-edge information and communication technologies such as artificial intelligence (AI), big data analytics, the Internet of Things (IoT), and blockchain Beyond merely implementing these technologies, digital transformation involves reimagining how we organize and interact, with digital technologies serving as a crucial enabler.
Digital transformation significantly enhances energy efficiency and production, contributing positively to environmental sustainability By increasing access to environmental information, it fosters innovative solutions that can lead to a healthier planet.
Digital technologies play a crucial role in environmental protection by enhancing waste management, preventing pollution, and promoting sustainable resource management Specifically, digitalization and networking are instrumental in reducing greenhouse gas emissions, contributing significantly to pollution prevention efforts.
Information and communications technology (ICT) services are essential for driving digital transformation, as highlighted by Rath & Hermawan (2019) and Kristyanlo & Jamil (2023) This sector encompasses a range of activities, including software publication, telecommunications, computer programming, web portals, data processing, consulting, hosting, and maintenance of computer and communication equipment (UNCTAD, 2015a) The rapid evolution of ICT has facilitated the rise of innovative services that can be exported globally without the need for physical transportation, such as big data, software, and cloud computing services (UNCTAD, 2015b; WTO, 2023).
A major factor in promoting green innovation is these services.
ICT services play a vital role in fostering green development through innovative solutions that enhance energy efficiency and reduce greenhouse gas emissions By promoting the transition to a green economy, these services facilitate the creation of new offerings that benefit both businesses and society The concept of substitution allows for the replacement of physical activities with digital alternatives, significantly lowering environmental impacts; for instance, virtual meetings can effectively reduce carbon emissions compared to traditional travel Additionally, optimization through ICT services streamlines existing processes, further minimizing their ecological footprint Collectively, these strategies underscore the importance of ICT in advancing sustainable practices and promoting a greener future.
Recent studies highlight the significant moderating effect of digital transformation, especially through ICT services, on green innovation and development, positioning it as a key driver for environmental sustainability Therefore, we put forth the following hypothesis:
—> Hypothesis 4: The positive impact of Green Innovation on Green Development is more pronounced for high digital transformation levels countries.
Implication for GDP: The relationship between green innovation and economic growth is
A study by Tawiah et al (2021) explores the intricate relationship between green development programs and economic growth across 123 countries, including both emerging and established economies Utilizing data from the OECD database spanning the years 2000 to 2020, the research highlights the significance of this intersection in understanding sustainable development.
A 2017 study reveals a significant positive correlation between green development and economic growth, as indicated by GDP per capita Wealthier nations tend to prioritize eco-friendly policies, suggesting that green development programs can serve as catalysts for sustainable economic expansion By investing in environmentally conscious practices, countries can enhance GDP growth through increased economic activity and innovation This reciprocal relationship highlights how sustained economic growth fosters further investment in green initiatives, creating a cycle of mutual reinforcement.
Numerous studies have established a significant and positive link between economic growth and eco-innovation, confirming the long-term relationship between economic development and innovation, as highlighted by various scholars.
Recent studies highlight the significant link between eco-innovation and economic growth, with research indicating that wise investments often lead to exceptional financial success (Temesgen Hordofa et al., 2023) A study conducted in Saudi Arabia further emphasizes the strong correlation between sustainability-focused eco-innovation and economic advancement (Tu et al., 2023) For African countries, embracing eco-innovation could serve as a foundation for success, as its ability to enhance competitiveness, generate employment, and foster long-term prosperity will ultimately determine its effectiveness Thus, eco-innovation emerges as a vital driver of economic expansion.
Baneliene & Strazdas (2023) identified three key indicators for their model: the European Innovation Index (Eli), the Eco-innovation Index (EcoII), and the European Digital Social Innovation Index (EDSII), alongside sub-indicators such as digital inclusion, access to software engineering skills, and individual giving The study aims to explore the relationship between innovativeness, the green economy, and digitalization across 25 EU countries Findings indicate that green innovation positively influences GDP growth, with an increase of 1 point in the EcoII potentially generating an additional €146 in GDP per capita annually Furthermore, the research supports its hypotheses through supplementary estimations using GDP growth indicators from 2020 and 2021, confirming that growth in green innovation not only boosts GDP per capita by €146 but also contributes to overall economic advancement.
According to Ha et al (2023), green innovation significantly enhances financial performance, particularly in terms of GDP growth, with a reported GDP per capita of €194 Their study explored the connection between green innovation and external environmental factors, examining its impact on both financial and environmental performance in 400 manufacturing SMEs across Vietnam's major industrial sectors.
The study underscores the vital connection between environmental sustainability and economic growth, providing empirical evidence that promotes green development as a strategy for enhancing resilience and fostering long-term economic prosperity while also improving environmental health Thus, this analysis presents the following hypothesis:
—> Hypothesis 5: The relationship between green innovation and economic growth is strengthened by green development
METHODOLOGY
Data collection
This study explores the connections between Green Innovation and Green Development by analyzing data from 161 countries spanning 1975 to 2022 We gathered country-level data, including the Official Exchange Rate, Industrialization Rate, Inflation Rate, Gross Capital Rate, Population Growth, Urbanization Rate, and Agriculture, Forestry, and Fishing Rate from World Bank Data, which we then organized into panel data Additionally, Green Innovation data was sourced from OECD, while Green Development data was also obtained from the World Bank.
In summary, it is important to note that all data variables used in this study have been obtained from various credible sources, which will be systematically presented in Table 1.
Dependent variable: GD
Our research focuses on assessing Green Development by analyzing renewable energy consumption, based on the premise that higher consumption of renewable energy reflects improved green development (Nawaz et al., 2021; Mngumi et al., 2022; Lee, Wang & Thinh, 2023) We quantify renewable energy consumption as the percentage of renewable sources relative to the total energy consumed annually.
This study utilizes global data on renewable energy consumption, measured on a scale from 0 to 100, to assess the impact of renewable energy use We suggest that a country's energy consumption can indicate the reduction of CO2 emissions resulting from the adoption of green technologies and various initiatives (Lee, Wang & Thinh, 2023).
Independent variable
Green innovation is measured by the number of patents granted for environmentally friendly technologies, which are essential for improving environmental quality (Yu et al., 2021; All et al., 2022) These patents are awarded to technologies that are safe for the environment, showcasing a nation's commitment to green development principles This index highlights the awareness and concerns of governments about the negative impacts of technological advancements that disregard environmental standards, reflecting a dedication to enhancing ecological integrity (Wen et al., 2021).
Green innovation is quantified by the total number of green patents related to environmental technologies, as outlined by All et al (2022) The OECD offers comprehensive data on patent applications from 161 countries spanning from 1975 to 2022, capturing trends and changes in new patents These patents play a crucial role in addressing global environmental challenges.
Control variable
Our study analyzes various country-level factors that may influence Green Development, including the Official Exchange Rate (OER) and Consumer Price Inflation (INF), which impact governmental and investment funding for environmental initiatives We also examine the percentage of industry in total GDP (IDU) to assess industrialization levels and their potential environmental risks Additionally, Gross Capital Formation as a percentage of GDP (GCF) sheds light on resource allocation between environmental and manufacturing sectors The Urban Population percentage (UPOP) serves as a measure of urbanization's effects on green development, while total population (POP) and the proportion engaged in agriculture, forestry, and fishing (AGR) are also considered These variables are compiled in Table 1 for further analysis.
Green Development GD The percentage of renewable energy sources to the total energy
Green Innovation GI The number of patents granted for environmental technologies
OER The exchange rate determined by national authorities or to the rate determined in the legally sanctioned exchange market
Industrialization rate IDU The percentage of industry to total GDP World Bank Data
Inflation rate INF The rate of increase in prices over a given year.
Gross capital rate GCF Annual growth rate of gross capital formation based on constant local currency.
Population growth l_POP The logarithm of the population of the country in a given year.
Urbanization rate UPOP The percentage of people living in urban areas to total population.
AGR The percentage of agriculture, forestry, fishing to total GDP
High gross capital rate high_gcf Dummy variable that equals 1 if the level of gross capital rate is higher than median and 0 otherwise.
High education, represented by the dummy variable high_edu, is defined as a value of 1 when the World Bank Data indicates that the annual growth rate of gross capital formation in constant local currency exceeds the median, and a value of 0 otherwise.
High digital high-dtf Dummy variable that equals 1 if the World Bank Data transformation level of digital transformation is higher than median and 0 otherwise.
Economic growth 1_GDP The logarithm of GDP of a country in a World Bank Data given year.
Model
The influence of Green Innovation on Green Development is thoroughly examined using the Multiple Linear Regression (MLR) for model estimation:
GDitj = Po + ^Glij 4- a Control variableSi j 4- ỗi + Ôj + ^i 7 (1)
This study utilizes sub-indexes to represent countries and years, denoting them as i and j, respectively We define Green Development (GD) as the ratio of renewable energy sources to a country's total energy in a specific year (j), which acts as the dependent variable in Equation (1).
Green Innovation (GI) is measured by the number of patents awarded for environmental technologies in a specific country during a given year In this framework, /?0 denotes the intercept, while PA indicates the slope parameter associated with the explanatory variables.
Our model includes a wide range of control variables for country i in year j that may affect the relationship between Green Innovation (GI) and Green Development (GD) Key control variables encompass the Official Exchange Rate, Industry Rate, Inflation Rate, Gross Capital Rate, Population Growth, Urbanization Rate, and the Agriculture, Forestry, and Fishing Rate Comprehensive definitions and sources for these variables are available in Table 1.
To address unobservable factors that remain constant over time and across countries, which could influence the connection between Green Development and Green Innovation, our model incorporates fixed effects for both year and country.
Our main hypothesis suggests that Green Innovation has a positive and significant influence on Green Development To test this hypothesis, we employ a Fixed-effects Generalized Least Square (GLS) Regression Approach, expecting to find a positive and statistically significant coefficient.
To assess the impact of Gross Capital Formation, Education Level, and Digital Transformation on Green Development in various countries, we developed and analyzed a comprehensive model.
The equation for the impact of the Gross Capital Formation high-level on the relationship between Green Innovation and Green Development:
GDij = p0 + ^Glij 4- p2high_gcfij + p3GIij X high_gcfij
+ a1Control variableSi j + Si + Sj + Hij (2)
The equation for the impact of the Education high-level on the relationship between Green Innovation and Green Development:
GDtJ = Vo, + 0vGIij + p2,high_edUij + p3,GIij X high_edUij
The equation for the impact of the Digital Transformation high-level on the relationship between Green Innovation and Green Development:
GD^i = pQ" + Pf'GIij + p2"high_dtfij + p3„GIij X high_dtfij
In this study, we define the country and year as i and j, respectively, with variables outlined in Equation (1) We introduce three key indicator variables: high_gcfi, which equals 1 for countries with an annual gross capital formation growth rate above the yearly sample median, and 0 otherwise; high_edU, indicating 1 for countries where the education level of individuals aged 25 and over with a Master’s degree exceeds the yearly sample median, and 0 otherwise; and high_dtf, which equals 1 for countries with ICT service exports exceeding the yearly sample median, and 0 otherwise.
The coefficients of the interaction terms Gliị X high_gcfij (p3), Glij X high_edUi j(p3f\ and Glij X high-dtfi j(p3ll) will elucidate the relationship between
Green Innovation significantly influences Green Development, particularly when coupled with increased levels of Gross Capital Formation, Education, and Digital Transformation Hypotheses (2), (3), and (4) highlight the positive effects of these factors on the relationship between Green Innovation and Green Development As these levels rise, the impact of Green Innovation is further amplified, leading us to expect that the coefficients of the interaction terms P3, P3f, and P3u will be both significant and positive.
To assess the moderating impact of Green Development on the relationship between Green Innovation and Economic Growth, we define a binary variable, high_gdi,j, which equals 1 if the share of renewable energy in total energy exceeds the annual sample median, and 0 otherwise This variable is then interacted with Green Innovation (GI) to form the interaction term GIịj X high_gdi,j We proceed to estimate the resulting model: log(GDP) = PiGIij + ^high^dij + ^GI X high_gdi,j.
In which, the sub-indices i and I denote the country and year, respectively The interaction term GIịj X high_gdijis designed to uncover the influence of Green
Innovation in conjunction with rapidly advancing Green Development in these countries Our attention is particularly drawn to the coefficient P3, which is central to
Hypothesis 5 This hypothesis posits that Green Development strengthens the relationship between Green Innovation and Economic Growth Consequently, we anticipate that the coefficient of this interaction term will be both positive and statistically significant.
EMPIRICAL RESULTS
Correlation Matrix
The correlation coefficient matrix of the independent variables for our primary model is presented in this table, which is based on a sample of 3,089 observations across 161 countries from 1975 to 2022 Detailed definitions of the variables can be found in Table 1.
Table 4 presents the pairwise correlations between independent variables in our main regression, revealing that the Green Innovation (GI) variable is significantly correlated with all control variables at a 1% significance level A positive correlation exists between the overall Green Innovation score and the Industrial Index, while a negative relationship is observed between GI and UPOP variables These correlations indicate that industries under stricter environmental regulations or facing resource scarcity are more likely to invest in green technologies Furthermore, knowledge spillovers within industrial clusters can enhance green innovation in specific sectors (Aldieri et al., 2019) In contrast, while sprawling urbanization may deplete environmental resources, well-planned compact cities can promote innovation through enhanced knowledge networks and resource access (Rosenzweig et al., 2018) The negative correlation may reflect the prevalence of less environmentally friendly industries in certain urban areas or insufficient infrastructure to support green technologies.
The relationships between the primary independent variables and the control variables show a correlation range of -0.66 to 0.41, indicating that changes in one variable result in only a weak corresponding change in the other.
An analysis of the Variance Inflation Factor (VIF) indicates that most of the variables used show low multicollinearity, with the Mean VIF remaining at 1.32 This suggests that there are no significant concerns regarding multicollinearity (Lindner, Puck, & Verbeke, 2020).
Baseline results
Full Full Developing Developing Developed Developed
Standard errors' are ill parentheses
Country FEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Table 5: Green Innovation and Green Development
This table illustrates the impact of green innovation on green development, with models (1) to (6) presenting regression results across different subsamples, including the full sample, developing countries, and developed countries In all specifications, the dependent variable is green development (GD), and Table I provides definitions for the variables used in the analysis.
The estimation for testing Hypothesis 1 is presented in Table 5, with findings from Equation (1) displayed for the entire sample in columns (1) and (2) Additionally, results specific to the subsample of developing countries are shown in columns (3) and (4), while the final two columns (5) provide further insights.
(6) columns illustrate the result for developed nations subsample Wherein, the control variables are not included in column (1), (3), and (5)
Table 5 presents the statistical estimations for the first hypothesis test, revealing a significant positive relationship between Green Innovation and Green Development across all samples, including both developing and developed nations This suggests that an increase in Green Innovations leads to a more sustainable use of renewable energy, aligning with findings from Salvarli & Salvarli (2020) Innovations such as improved solar panels, wind turbines, and energy storage solutions enhance the affordability and efficiency of renewable energy, making it more competitive with fossil fuels and promoting market adoption Figure 2 illustrates the fitted regression for the impact of Green Innovation on Green Development, showing an upward trend with a correlation of 0.48 based on country-level averages over the sample period.
Figure 2: Scatter plot on Green Innovation and Green Development as country-level average values
The coefficients for Green Innovation are 0.076 and 0.063, indicating that a one-unit increase in Green Technology Patents contributes approximately 0.076% and 0.063% to Green Development, which measures the rise in renewable energy usage relative to total energy consumption, while holding other factors constant This outcome supports Hypothesis 1 and aligns with the findings of Geissdoerfer et al (2017).
Our analysis of Models (3) and (4) indicates that developing economies can improve their Green Development performance by approximately 0.059% to 0.056% with a one-unit increase in Green Innovations, holding other factors constant The findings from both models consistently demonstrate significant coefficients at a 1% significance level.
In developed countries, the coefficients for green innovation (GI) show a significant shift from insignificance in model (5) to a positive significance level of 1% in model (6) when additional control variables are considered This indicates that the influence of GI on green development (GD) is notably stronger in developed nations, with a difference exceeding 0.3% compared to developing countries The robust infrastructure and financial resources in developed nations facilitate the effective integration of new renewable technologies driven by GI, allowing for a more substantial impact on renewable energy adoption.
Endogeneity concerns
Full Full Developing Developing Developed Developed
Standard errors are in parentheses
Country FEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Table 6: Endogeneity addressing GMM approach.
The table presents the findings on the impact of green innovation on green development, as analyzed through a country's fixed-effects model Models (1) to (6) illustrate the regression results for the complete sample, as well as for two distinct subsamples: developing and developed countries In all specifications, the dependent variable is L.GĐ, with robust standard errors clustered at the country level Additionally, Table 1 provides definitions for the variables used in the analysis.
In addressing potential endogeneity issues, the study incorporates year and country fixed effects to account for unobservable factors, while recognizing the omission of key variables that may affect the Green Innovation coefficient To mitigate this, the analysis utilizes a lagged dependent variable and employs lagged independent variables as instruments The validity of the model is confirmed through the GMM-Hansen test and AR(2) test, as detailed in Table 6 The findings reveal that the coefficients on Green Innovation are both positive and statistically significant at the 1% level across the full sample, with stronger effects observed in developed countries compared to developing ones Overall, the results demonstrate robustness and consistency with baseline findings, indicating that endogeneity concerns do not significantly impact the model's reliability.
The interaction term role of Gross Capital Formation
Full Developing Developed Full Developing Developed
Standard errors are in parentheses
Country FEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Table 7: Interaction of green innovation and Gross capital formation.
This table reports the effects of green innovation and green development on the degree of gross capital formation Models
The basic regression results for the full sample, as well as for developing and developed countries, are presented, with Gross Domestic Product (GDP) serving as the dependent variable Detailed definitions of the variables can be found in Table I.
Table 7 highlights the statistical significance of Gross Capital Formation (GCF) in its relationship with Green Innovation and Green Development, specifically supporting Hypothesis 2 The analysis includes three samples: all tested countries, a subsample of developing countries, and a subsample of developed countries A dummy variable, high_gcf, is defined to indicate countries with above-median GCF The results show that GCF significantly influences the relationship in both the full sample and developing nations, with p-values of 0.025 and 0.024, respectively The interaction terms for these samples are statistically significant at the 1% level, while developed nations do not show the same significance This confirms that countries with higher GCF experience a stronger relationship between Green Innovation and Green Development.
The study by Li et al (2023) highlights that increased Gross Capital Formation (GCF) enhances a country's ability to adopt green technologies Improved infrastructure supports the deployment of renewable energy systems, while increased investment in research and development fosters domestic innovation in clean technologies tailored to local contexts Additionally, a stable financial environment and a skilled workforce attract foreign green investments, encouraging companies to introduce their technologies and expertise.
The analysis indicates that Gross Capital Formation significantly influences the relationship between Green Innovation and Green Development in developing countries, unlike in developed nations Additionally, the control variables presented in the tables reveal that nearly all coefficients, with the exception of UPOP, are statistically insignificant for the group of developed countries.
The GMM - Hansen test and AR (2) test were employed to validate the model (Hansen & Lee, 2021), with results displayed in the three columns to the right of Table 7 The analysis reveals that the coefficients of GI_high_gcf are both positive and statistically significant at the 1% level for the full sample and developing countries These findings demonstrate robustness and consistency with the baseline results, indicating that endogeneity concerns are not a significant issue in our model.
The interaction term role of Education
_ OLS GMM Full Developing Developed Full Developing Developed
Standard errors arc in parentheses
R-squared 977 98 949 p-value for Hansen J 0.663 0.839 0.902 test p-value for AR(2) test 0.402 0.671 0.660
Country FEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Table 8: Interaction of Green innovation and Education.
This table reports the effects of green innovation and green development on the degree of education Models (1) through
The basic regression results for the full sample, developing countries, and developed countries are presented, with GDP as the dependent variable Definitions of the variables utilized in the analysis are detailed in Table 1.
Table 8 highlights the significant role of Education in the relationship between Green Innovation and Green Development, specifically addressing Hypothesis 3 The analysis includes three samples: all tested countries, developing countries, and developed countries A dummy variable, high_edu, is defined for countries with above-median Education levels The findings reveal that Education positively influences this relationship in the full sample and developing nations, with significance levels of 0.025 and 0.024, respectively Conversely, developed countries show a negative coefficient of -0.778 The interaction terms across all samples are statistically significant at 1%, indicating a stronger relationship between Green Innovation and Green Development in nations investing heavily in Education This aligns with Filho et al (2019), suggesting that countries with high Education levels benefit from a larger skilled workforce that fosters innovation and sustainable practices, supported by robust research institutions and government prioritization of green development.
The coefficients reveal a significant divergence between developing and developed countries, with values of 0.078 and -0.778, respectively This indicates a positive correlation between investment in education and the relationship between green innovation and green development in developing nations In contrast, developed countries exhibit a negative interaction between education and green innovation, suggesting that higher education levels do not necessarily enhance the positive impact of green innovation on green development Instead, there may be mitigating factors in developed nations that dampen this relationship.
The team employed the GMM - Hansen test and AR (2) test to validate the model, as detailed by Hansen & Lee (2021) The findings, presented in the subsequent three columns of Table 8, reveal that the coefficients of GI_high_edu are positive and statistically significant at the 1% level for the full sample and developing countries, while showing a negative value for developed nations Overall, the results are robust and align with the baseline findings, indicating that endogeneity concerns are minimal in our model.
The interaction term role of Digital Transformation
Standard errors are in parentheses
R-squared 977 98 949 p-value for Hansen J 0.564 0.432 0.897 test p-value for AR(2) lest 0.891 0.252 0.770
Country EEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Table 9: Interaction of Green innovation and Digital transformation.
This table presents the impact of green innovation and green development on digital transformation levels, with regression models (I) to (6) illustrating the findings across different samples, including full, developing, and developed countries The dependent variable in these models is green development (GD), and the definitions of the variables are detailed in Table I.
Table 9 highlights the statistical significance of Digital Transformation, particularly the growth in ICT, and its impact on the relationship between Green Innovation and Green Development for Hypothesis 4 The analysis includes three samples: all tested countries in the first column, a subsample of developing countries in the second column, and a subsample of developed countries in the third column Additionally, we introduce the variable high_dtf, defined as a dummy variable.
Countries with above-median levels of Digital Transformation show a significant positive impact on overall growth, as evidenced by empirical data from the full sample analysis.
In developing nations, the coefficients for green innovation and green development are relatively low at 0.032 and 0.034, while developed countries show a significant negative coefficient of -0.446 The interaction terms across all samples are statistically significant at 1%, indicating that higher levels of digital transformation, marked by increased adoption of Information and Communication Technologies (ICTs), enhance the positive effects of green innovation on green development This amplification can be attributed to ICTs' ability to improve efficiency, optimize resource use, and support sustainable practices Consequently, this finding validates Hypothesis 4, confirming that the positive relationship between green innovation and green development is stronger in countries with advanced digital transformation.
The coefficients reveal a divergence between developing and developed countries, with values of 0.034 and -0.446, respectively This suggests that the role of ICT services in enhancing the link between Green Innovation and Green Development is positively influenced in developing nations, where digital transformation can lead to accelerated economic growth and leapfrogging of traditional development paths In contrast, developed countries experience a more complex and often negative relationship, as their digital transformation tends to be incremental and associated with challenges like automation, job displacement, and environmental externalities (Shen & Wang, 2023).
The team employed the GMM - Hansen test and the AR (2) test to validate the model's reliability (Hansen & Lee, 2021), with results detailed in the subsequent three columns of Table 9 The findings indicate that the coefficients of GI_high_dtf are positive and statistically significant at the 1% level for the full sample and developing countries, while showing a negative figure for developed nations Overall, these results are robust and align with the baseline findings, suggesting that endogeneity concerns are minimal in our model.
Implications for GDP Growth
Full Full Developing Developing Developed Developed
Country FEs YES YES YES YES YES YES
Year FEs YES YES YES YES YES YES
Standard errors arc in parentheses
Table 10: The impact of green development and green innovation on GDP Growth.
This table presents the impact of green development and green innovation on GDP growth, with models (1) to (6) illustrating the fundamental regression findings across different samples, including the full sample, developing countries, and developed countries, using green innovation (GI) as the dependent variable For detailed definitions of the variables, please refer to Table 1.
To assess the moderating influence of Green Development on the relationship between Green Innovation and economic growth, we introduce a dummy variable, high_GD, which is set to 1 for countries with Green Development levels above the median and 0 for those below This variable is then integrated into our analysis of Green Innovation We estimate the following model: log(GDP) = Po + ^Glij + ^high^dij + 03GIij X high_gdij.
This study examines the interaction between Green Innovation and Green Development, focusing on the coefficient of the interaction term The findings indicate that while Green Innovation positively impacts economic growth, this effect is significantly enhanced in the presence of high Green Development The coefficients for Green Innovation and the interaction term support this conclusion, aligning with Hypothesis 5 and recent research by Ha et al (2023), which underscores the critical role of Green Development in fostering economic growth through innovation.
Green Innovation positively influences economic growth in countries with high Green Development, with an increase of 0.002, and this effect is even more pronounced in developing nations at 0.003 In contrast, developed countries experience a negative impact of -0.006 These findings highlight a significant divergence in how Green Innovation and Green Development contribute to national GDP between developing and developed nations, suggesting an important area for further research.
CONCLUSION, LIMITATIONS, AND POLICY IMPLICATIONS
Conclusion
Our comprehensive study provides compelling evidence that green innovation is crucial for meeting green development objectives We found a significant positive correlation between investments in green innovation and various indicators of sustainable development, based on an analysis of 161 countries from 1975 onwards.
The descriptive statistics from the 2022 study offer valuable insights into the distribution and patterns of key factors related to green innovation and development By presenting a range of mean scores and extreme values, these figures underscore the breadth and complexity of our research, establishing a robust foundation for our findings.
Our analysis of trendlines and comparisons between country groups highlights significant variations in the relationship between green innovation and sustainable development across different contexts By exploring the distinctions between developing and developed nations, as well as the influence of moderating factors such as Gross Capital Formation, Education, and Digital Transformation, we consistently find that green innovation positively contributes to sustainable development outcomes.
The regression analysis reveals a statistically significant positive relationship between green innovation and green development across various models and national groups Notably, the inclusion of interaction factors such as digital transformation, education, and gross capital formation highlights the intricate ways these elements amplify the impact of green innovation on sustainable development goals Our sensitivity analyses, which tackle endogeneity concerns, further reinforce the robustness of our findings, substantiating the causal link between green innovation and green development.
Our research highlights the transformative potential of green innovation in building a resilient and sustainable future for generations to come By embracing green innovation and enacting targeted policies and interventions, we can foster a more sustainable, equitable, and prosperous society that benefits all.
Limitations
This study provides valuable insights into the connections between various factors related to green innovation; however, several limitations must be considered The observational nature of our data restricts our ability to establish definitive causal relationships Additionally, the use of aggregated country-level data may mask intra-country variations and overlook localized impacts of green innovation initiatives Differences in policy environments, institutional frameworks, and socio-economic conditions within regions can influence the observed relationships, affecting the generalizability of our findings While we have included numerous control variables and interaction terms to address the complexity of green innovation and development, unobserved factors such as cultural attitudes, political stability, and technology access may still confound the results Furthermore, reliance on secondary data for key variables like Green Innovation scores and Digital Transformation may introduce measurement errors that limit our analysis Lastly, the novelty of this topic highlights existing gaps in data collection and the need for more comprehensive variables to enhance the rigor of scientific inquiry.
Policy implications
Countries striving for green development can receive various forms of support, including financial loans, technology transfer, capacity building, and policy guidance to aid in their transformation efforts.
Nations aiming to invest in sustainable practices and green technology require financial support, which can be provided by prosperous countries and global organizations through loans, subsidies, and access to sustainable investment resources Additionally, technology plays a crucial role in advancing sustainable development, with wealthy nations sharing technical expertise and eco-friendly technologies Global initiatives can enhance technology transfer by promoting information sharing, collaboration in research and development, and integrating innovations into local contexts Capacity building can be achieved through technical training programs, workshops, and educational initiatives, focusing on areas such as ecological legislation, clean energy systems, climate change adaptation, and sustainable resource management.
Successful green development programs require strong policy direction and collaboration from governments, leveraging tailored policies and best practices from global organizations and experts Authorities must establish laws and regulations that promote innovative green practices and sustainable growth, which may include grants, tax incentives, and subsidies for eco-friendly initiatives Furthermore, fostering partnerships between the public and private sectors is essential to pool resources and knowledge for green development projects Effective policy implementation relies on robust organizational capacity and governance, necessitating clear roles and enhanced cooperation among relevant ministries and stakeholders To ensure the successful execution of green initiatives, stakeholder engagement and public awareness are crucial; thus, governments, civil society, and educational institutions should promote public involvement, educational programs, and activities that encourage eco-friendly behaviors.
Our research equips policymakers with essential insights to create customized strategies that promote global collaboration and networking By facilitating the exchange of best practices, lessons learned, and shared experiences, we enable countries to adapt their policies to fit their specific contexts while benefiting from each other's successes and challenges.
Supporting countries in their green development journey requires financial assistance, technology transfer, capacity building, and policy guidance A successful transition to sustainable growth hinges on a combination of supportive regulations, effective management, public awareness, stakeholder engagement, and international collaboration These elements are essential for implementing the regulations that ecological innovation brings to practical applications, ultimately allowing nations to embrace sustainable growth and benefit from green innovation.
Further research
Research indicates that developing nations possess significant potential for sustainable economic growth, driven by abundant renewable resources such as solar, wind, water, and geothermal energy These countries can bypass outdated technologies and adopt modern, eco-friendly practices in energy, agriculture, transportation, and waste management By fostering innovation and entrepreneurship, they can address local environmental issues with affordable clean energy solutions and sustainable agricultural methods The expanding consumer markets in these regions present opportunities for sustainable businesses to meet the rising demand for environmentally friendly products and services Additionally, the rich natural resources and biodiversity in developing countries can be leveraged to promote sectors like ecotourism and sustainable agriculture To achieve sustainable progress, it is essential to implement supportive policies, ensure access to finance and technology, provide skills training, and encourage international collaboration.
Analyzing the linkages between funding methods and project outcomes in developing areas through qualitative and quantitative analysis can enhance our understanding of effective financing strategies Investigating initiatives in renewable energy and sustainable agriculture will shed light on how gross capital formation and regulations impact results A comparative assessment across regions with varying economic profiles, governance systems, and natural resources, such as sub-Saharan Africa, Southeast Asia, and small island developing nations, may reveal significant differences in the effects of gross capital formation Furthermore, evaluating policy interventions designed to optimize gross capital formation for national green progress is essential, as localized and cross-regional analyses can identify the most effective policies for leveraging financial resources to achieve environmental and economic benefits.
Understanding the relationship between Gross Domestic Product (GDP) and Green Innovation (GI) is just the first step; it is crucial to analyze how national characteristics influence this relationship Developing countries stand to gain significantly from innovation by focusing on key areas such as digital transformation, infrastructure development, and education By enhancing basic infrastructure like reliable electricity and transportation, these nations can foster an environment conducive to the adoption of sustainable practices The digital revolution also plays a vital role in promoting ecological sustainability by optimizing resource use and facilitating the transition to renewable energy Therefore, governments in developing countries can maximize the benefits of the GI-GDP relationship and promote sustainable, equitable growth by prioritizing these strategic areas.