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Environmental Pressure in Supply Chains: Pass-Through Effects on R&D and Innovation

Author

Listed:
  • Cavalcanti, T.
  • Mohaddes, K.
  • Nian, H.
  • Yin, H.

Abstract

This paper investigates the pass-through of environmental compliance costs along supply chains. We compile a firm-level dataset linking regulated firms in pollution-intensive industries with their top five clients and suppliers. We find that clients of regulated firms invest less in R&D, employ fewer skilled R&D staff, and produce fewer innovations than clients of less regulated firms, while no comparable effects are observed for suppliers. The pass-through is stronger with larger trade volumes, higher input prices faced by clients, and in markets where regulated firms hold greater market power or clients face intense competition. Policy simulations suggest that green technology incentives for regulated firms and R&D subsidies for their clients can mitigate these adverse effects and raise social welfare by enhancing both innovation and environmental quality.

Suggested Citation

  • Cavalcanti, T. & Mohaddes, K. & Nian, H. & Yin, H., 2025. "Environmental Pressure in Supply Chains: Pass-Through Effects on R&D and Innovation," Cambridge Working Papers in Economics 2568, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2568
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    References listed on IDEAS

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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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