Does foreign environmental policy influence domestic innovation? Evidence from the wind industry

This paper examines the relative influence of domestic and foreign renewable energy policies on innovation activity in wind power using patent data from OECD countries from 1994 to 2005. We distinguish between the impact of demand-pull policies (e.g., guaranteed tariffs, investment and production tax credits), as reflected by wind power capacities installed annually, and technology-push policies (government support to R&D). We show that inventors respond to both domestic and foreign new capacities by increasing their innovation effort. However, the effect on innovation of the marginal wind turbine installed at home is 28 times stronger than that of the foreign marginal wind turbine. Unlike demand-pull policies, public R&D expenditures only affect domestic inventors. A simple calculation suggests that the marginal million dollars spent on R&D support generates 0.82 new inventions, whereas the same amount spent on the deployment of wind turbines induces, at best, 0.06 new inventions (0.03 locally and 0.03 abroad).