Innovation, Green Products and Trade: Evidence from Multiproduct Firms

We provide transaction-level evidence on the export performance of green products, examining whether environmentally friendly attributes translate into competitive advantage or disadvantage in international markets. Using Italian customs data matched to firm patent portfolios (2005-2019), we track export transactions by firm, product, destination, and patent protection status. Green products and patents are classified using OECD and WIPO taxonomies. We test mechanisms through three sources of variation: within-firm differences in patent protection across destinations, exogenous exchange rate shocks, and destination-specific environmental policy stringency captured by the OECD EPS index, controlling for firm capabilities, product characteristics, and destination market conditions using high-dimensional fixed effects. Unpatented green products face a price-quantity tradeoff: they command higher unit values but achieve substantially lower export quantities, resulting in net revenue penalties. They exhibit amplified exchange rate sensitivity, consistent with the structural margin constraints that penalize green products relative to conventional ones. Patent protection reverses these patterns: patent-protected green products generate higher export quantities and revenues while retaining most of the unit value premium. This quantity expansion is equivalent for non-green and green patents, indicating that the benefits of patent protection do not depend on the environmental content of the underlying innovation. Exchange rate shocks reveal that patent protection partially mitigates the pricing constraints of green products. Increased stringency of destination environmental policy primarily expands green product exports through quantities rather than prices, attenuating but not eliminating the baseline disadvantages of unpatented green products. These findings clarify that the structural margin constraints penalizing green products relative to conventional ones impose competitive disadvantages that price premia alone cannot overcome. Patent protection solves two distinct problems -appropriability and credibility- enabling green products to achieve scale.