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

Tiago Cavalcanti, Kamiar Mohaddes, Hongyu Nian and Haitao Yin

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

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.

Keywords: environmental compliance; supply chain; pass-through; R&D; innovation (search for similar items in EconPapers)
JEL-codes: O30 Q01 Q55 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-ene, nep-env, nep-ino, nep-sbm and nep-tid
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https://crawford.anu.edu.au/sites/default/files/20 ... addes_Nian_Yin_0.pdf

Related works:
Working Paper: Environmental Pressure in Supply Chains: Pass-Through Effects on R&D and Innovation (2025)
Working Paper: Environmental Pressure in Supply Chains: Pass-Through Effects on R&D and Innovation (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-55

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