No Diffusion at All: Trade, Free Riding, and Government Underspending in Environmental Innovation

19 May 2021, Version 1
This content is an early or alternative research output and has not been peer-reviewed at the time of posting.


Governments have an irreplaceable role in supporting environmental innovation due to market failure. Nevertheless, this article develops the free riding argument that the trade-driven technology transfer incentivizes national governments to underspend on environmental innovation. The data on government environmental research and development (R&D) expenditures and bilateral trade volumes of environmental goods from 32 OECD countries, 1982–2017, are used to substantiate my argument. Spatial regression finds that nations spend less on environmental R&D as a response to the increasing spending from their trade partners in the preceding year. This research contributes to the broader literature by presenting a new mechanism underlying the trade-environment nexus and showing that the strengthening transnational interdependence does not necessarily drive norms and policies to diffuse internationally.


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