Do eco-innovations harm productivity growth through crowding out? Results of an extended CDM model for Italy

This paper discusses the results for Italy of a CDM model (Crepon et al., 1998) further extended with the objective of evaluating drivers and productivity effects of environmental innovations. The particular nature of environmental innovations, especially as regards the need of government intervention to create market opportunities, is likely to affect the way through which they are pursued (innovation equation within the CDM model) and their effect on productivity (productivity equation). The contribution of the paper is manifold. First, the drivers of environmental innovations (measured with environmental patents) are investigated by using mainly administrative data instead of survey data. Second, I investigate the extent to which firms with big polluting plants tend to bias their innovation strategies towards environmental technologies. Third, the return of environmental innovations is compared to the one of other innovations to indirectly assess the presence of a crowding out effect of environmental innovations at the expenses of other (possibly more profitable) innovations. Results, based on administrative data (AIDA by Bureau van Dijk and patent data from PATSTAT) of Italian manufacturing firms, show that innovation efforts of polluting firms is significantly biased towards environmental innovations and that environmental innovations tend to crowd out other more profitable (at least in the short run) innovations.