How Government Size Expansion Can Affect Green Innovation—An Empirical Analysis of Data on Cross-Country Green Patent Filings

Jun Wen, Lingxiao Li, Xinxin Zhao, Chenyang Jiao and Wenjie Li
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Jun Wen: School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China
Lingxiao Li: School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China
Xinxin Zhao: School of Economics and Finance, Xi’an Jiaotong University, Xian 710061, China
Chenyang Jiao: School of International Economics and Trade, Lanzhou University of Finance and Economics, Lanzhou 730020, China
Wenjie Li: School of Business Administration, Shandong University of Finance and Economics, Jinan 250014, China

IJERPH, 2022, vol. 19, issue 12, 1-22

Abstract: The expansion of government size will have dual effects on a country’s green innovation. An appropriately sized government size increases marginal productivity and stimulates the development of green innovation by increasing government expenditure. On the contrary, an excessively sized government creates a huge administrative agency, which not only increases the tax burden but also damages social welfare by excessive intervention. Therefore, the effect of government size on green innovation is not linear. In order to prove this proposition, this study examines the impact of government size on green innovation in 166 countries between 1995 and 2018, using a two-way fixed effects model. The results reveal an inverted U-shaped relationship between government size and the level of green innovation, indicating that optimal government size may maximize a country’s green innovation output. The results further suggest that this inverted U-shaped relationship is mainly influenced by environmental regulations and financial support. Finally, our heterogeneity analysis demonstrates that the inverted U-shaped relationship is more pronounced for countries with high organizational inertia and more R&D expenditure than for those with low organizational inertia and less R&D expenditure. This finding makes up for the research gap between government size and green innovation and provides a reference for countries to formulate the optimal government size to improve the level of green innovation.

Keywords: government size; green innovation; two-way fixed effects; inverted U-shaped relationship (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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