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Does environmental regulation indirectly induce upstream innovation? New evidence from India

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  • Chakraborty, Pavel
  • Chatterjee, Chirantan

Abstract

Exploiting a quasi-natural experiment, which involves the imposition of a ban by Germany in 1994 on an input (‘Azo-dyes’) used by the Indian leather and textile industries, we estimate the indirect impact of the environmental regulation on innovation activities of upstream (dye-producing) firms in India and examine how it varies by different firm characteristics: size and ownership. We find robust evidence of a significant increase (11–61%) in innovation expenditure for the dye-makers in response to the ‘Azo-dyes’ ban. Additionally, we find: (i) increase in technology transfer to the tune of 1.2–2.5 times more than that of internal R&D; (ii) increase in innovation expenditure with firm size; (iii) domestic firms investing more in technology transfer as compared to R&D, whereas foreign firms only undertaking the latter and (iv) decrease in investments towards innovation by downstream firms, thereby pointing towards a possible substitution effect in aggregate innovation by upstream firms. Our results are consistent with a variety of estimation methods and robustness checks.

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  • Chakraborty, Pavel & Chatterjee, Chirantan, 2017. "Does environmental regulation indirectly induce upstream innovation? New evidence from India," Research Policy, Elsevier, vol. 46(5), pages 939-955.
    • Handle: RePEc:eee:respol:v:46:y:2017:i:5:p:939-955
    DOI: 10.1016/j.respol.2017.03.004
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    More about this item

    Keywords

    ‘Azo-dyes’ ban; Innovation; R&D expenditure; Technology transfer; Dye-producing firms; India;
    All these keywords.

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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