Climate Change, Gender Equality, and Firm-Level Innovation : Cross-Country Evidence

This paper examines the nexus between gender equality, climate change, and innovation at the firm level. Based on three hypotheses derived from a novel theoretical framework linking climate change and gender equality to within-firm innovation activities, we use a cross-section dataset of 87, 996 firms across 36 industries in 103 countries, surveyed across different waves during the 2010-2020 periods to implement an instrumental variable strategy and show that environmental policies unambiguously induce firm-level process and product innovation, through its influence on the endogenous bargaining power of women in society and firms. We document that female productivity has both a direct effect on innovation (0.1-1.3% increase in the likelihood of innovation) and an indirect effect (serving as the intermediation for the environment-innovation nexus). Contrarily, greenhouse gas emissions by themselves have an ambiguous effect on innovation. The type of greenhouse gas emissions and the measure of innovation both contribute to this ambiguity. Overall, our results show that it is not the physics of climate change that induces innovation but rather the countervailing human responses to policies that mitigate climate change that stimulate innovation.