Innovation, Green Products and Trade: Evidence from Multiproduct Firms

The ability of markets to drive the green transition depends on how well environmentally friendly products fare in international competition, an open question given the scarcity of product-level evidence. Using Italian customs data (2005-2019) matched to firm patent portfolios, we track export transactions by firm, product, destination, and patent status, with green products and patents classified through OECD and WIPO taxonomies. We examine whether green attributes translate into a competitive advantage or disadvantage, and through which channels. Unpatented green products face a price-quantity trade-off: they command higher unit values but sell substantially lower quantities, yielding net revenue penalties. They also absorb less of an exchange-rate movement in their own price than conventional varieties of the same firm, a pattern compatible with the thinner margins a cost disadvantage implies. Green products whose producer holds the relevant technology sell substantially more, in quantity and in value; the differential survives controls for the position of the variety in the firm's portfolio and does not depend on the environmental content of the patent. The association runs through volumes rather than prices, and we find no evidence that innovation eases the pricing constraints green products face. Stricter destination environmental policy expands green exports through quantities, attenuating but not eliminating the disadvantage. Environmental attributes alone generate a competitive disadvantage that the price premium does not reverse. The association is with volumes rather than with marginal costs, so the evidence does not confirm the cost offset the Porter hypothesis proposes.