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How Government Size Expansion Can Affect Green Innovation—An Empirical Analysis of Data on Cross-Country Green Patent Filings

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  • Jun Wen

    (School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China)

  • Lingxiao Li

    (School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China)

  • Xinxin Zhao

    (School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China)

  • Chenyang Jiao

    (School of International Economics and Trade, Lanzhou University of Finance and Economics, Lanzhou 730020, China)

  • Wenjie Li

    (School of Business Administration, Shandong University of Finance and Economics, Jinan 250014, China)

Abstract

The expansion of government size will have dual effects on a country’s green innovation. An appropriately sized government size increases marginal productivity and stimulates the development of green innovation by increasing government expenditure. On the contrary, an excessively sized government creates a huge administrative agency, which not only increases the tax burden but also damages social welfare by excessive intervention. Therefore, the effect of government size on green innovation is not linear. In order to prove this proposition, this study examines the impact of government size on green innovation in 166 countries between 1995 and 2018, using a two-way fixed effects model. The results reveal an inverted U-shaped relationship between government size and the level of green innovation, indicating that optimal government size may maximize a country’s green innovation output. The results further suggest that this inverted U-shaped relationship is mainly influenced by environmental regulations and financial support. Finally, our heterogeneity analysis demonstrates that the inverted U-shaped relationship is more pronounced for countries with high organizational inertia and more R&D expenditure than for those with low organizational inertia and less R&D expenditure. This finding makes up for the research gap between government size and green innovation and provides a reference for countries to formulate the optimal government size to improve the level of green innovation.

Suggested Citation

  • Jun Wen & Lingxiao Li & Xinxin Zhao & Chenyang Jiao & Wenjie Li, 2022. "How Government Size Expansion Can Affect Green Innovation—An Empirical Analysis of Data on Cross-Country Green Patent Filings," IJERPH, MDPI, vol. 19(12), pages 1-22, June.
    • Handle: RePEc:gam:jijerp:v:19:y:2022:i:12:p:7328-:d:839269
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    2. Eleftherios Spyromitros, 2023. "Determinants of Green Innovation: The Role of Monetary Policy and Central Bank Characteristics," Sustainability, MDPI, vol. 15(10), pages 1-23, May.
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    4. Ningning Cui & Emmanuel Nketiah & Xiaoyu Ma, 2023. "Do Green Energy and Information Technology Influence Greenhouse Gas Emitting Countries to Attain Sustainable Development?," Sustainability, MDPI, vol. 15(18), pages 1-19, September.
    5. Wen, Jun & Zhao, Xinxin & Fu, Qiang & Chang, Chun-Ping, 2023. "The impact of financial risk on green innovation: Global evidence," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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