WHEN DOES STRINGENCY FOSTER CREATIVITY? THE ROLE OF PROPERTY RIGHTS INSTITUTIONS IN THE BATTLE AGAINST CLIMATE CHANGE

Abstract

If the world is to succeed in the battle against climate change, technological innovation must play a key role. With this research, I contribute to the growing literature on green innovation by investigating the degree to which institutional contexts determine whether environmental policy can induce innovation. Since institutions and policy both affect incentives to innovate, I argue that the interaction between the two is a key element that has thus far been overlooked. To test this claim, I conduct two empirical analyses: first, I look at panel data of 34 OECD and BRIICS countries from 2006 to 2015. I use conventional OLS to regress patents per capita on environmental policy, property rights, an interaction term—my key variable of interest. I also use random forest to impute missing values. To deal with endogeneity concerns stemming from the relationship between strength of property rights institutions and patent activity, I then run an instrumental variables (IV) regression using country- centroid latitude coordinates to instrument property rights. Second, I conduct a case study of environmental regulation in China's Eleventh Five-Year Plan and its impacts on innovation. I adopt a triple difference (TD) approach to analyze province-level trends in patent output. Across both studies, I find broad support for my hypothesis.