The Links between Environmental Innovation and Environmental Performance: Evidence for High- and Middle-Income Countries

Technology innovation plays an increasingly prominent role in addressing global environmental challenges. In particular, environmental technology innovation (environmental innovation) is the most powerful and realistic alternative to achieve environmental sustainability and sustainable development. A better understanding of how environmental innovation affects the environment and how the effect differs by country is needed. This study analyzes how environmental innovation affects environmental improvement by a dynamic panel model using the System Generalized Method of Moments (GMM) estimation. We use panel data from 33 high-income countries and 36 middle-income countries for the period 1996–2011, to compare their environmental pollution patterns, and determine how environmental innovation affects air pollution reduction as measured by sulfur dioxide (SO 2 ) and carbon dioxide (CO 2 ) emissions. The results reveal that environmental innovation improves the environment in some countries over time. The effect is particularly beneficial in high income countries. It is evident that environmental innovations reduce SO 2 and CO 2 emissions in high-income countries with time interval, while it does not in middle-income countries. The study also identifies that the relationship between per capita income and SO 2 and CO 2 emissions has a different pattern between high- and middle-income countries. The inverted U-shaped pattern supporting the hypothesis of the Environmental Kuznets Curve (EKC) exists in high-income countries. The examination of the trade effect on pollution emissions provides mixed results; however, trade clearly increases SO 2 and CO 2 emissions in middle-income countries. This study contributes to empirical literatures on the effect of environmental innovation on environmental improvement. And it has significant implications for understanding the importance of direction and role of environmental innovation for environmental sustainability and sustainable development.