Does Host Market Regulation Induce Cross-Border Environmental Innovation?

This paper evaluates the effect of host‐country environmental policy stringency on the offshoring of green patents for 2000 top world R&D performers. It is shown that a more stringent environmental regulation triggers patent offshoring in the field of green technologies. Results are robust to various different specifications, to alternative definitions of innovation offshoring and of regulatory restrictions, to controls for firm and country‐level characteristics and to the consideration of possible endogeneity of regulation. We interpret these findings as evidence that MNEs can take advantage from their exposure to multiple institutional settings, reducing the costs of, and increasing the payoff from, green innovation offshoring. It is also suggested that R&D subsidies and non‐market‐based regulatory measures are more important than market‐based instruments as drivers of cross‐border environmental innovation.