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The role of environmental taxes on technological innovation

Shamal Chandra Karmaker1,2,3, Shahadat Hosan1,2, Andrew J. Chapman1 and Bidyut Baran
Saha1,2, *

1 International Institute for Carbon-Neutral Energy Research (WPI-I2CNER)

Kyushu University, 744 Motooka, Nishi-ku, Fukuoka-shi, Fukuoka 819-0395, Japan
2 Mechanical Engineering Department, Kyushu University, 744 Motooka, Nishi-ku, Fukuoka-shi,
Fukuoka 819-0395, Japan
3 Department of Statistics, University of Dhaka, Dhaka-1000, Bangladesh
*Corresponding Author, E-mail: saha.baran.bidyut.213@m.kyushu-u.ac.jp

ABSTRACT
Several studies have investigated the effect of environmental taxes on economic growth and
carbon emissions. However, limited studies have quantitatively identified the connection
between environmental taxes and technological innovations. The main focus of this study is to
investigate the causal relations between environmental taxes and environment-related
technological innovation with a holistic, robust model with significant statistical power. This
model consists of panel cointegration analysis considering the cross-sectional dependence,
applied to quantify the effects of environmental taxes on environment-related technological
innovation in high and middle-income 42 countries from 1995 to 2018. The long-run results
suggest that environmental taxes stimulate technological innovation; for example, a 1 percent
increase in environmental taxes was found to increase environment-related technological
innovation by 0.57 and 0.78 percent on average for high and middle-income countries using the
CCEMG and AMG techniques, respectively. The policy implications of this study suggest that
imposing environmental taxes can accelerate the advancement of environmental-related
technologies for reducing carbon emission and sustainable development in high and middle-
income nations, with possible applications in a broad range of nations, particularly as an
evidence base for developing nations to shorten energy transition timelines.

© 2021 published by Elsevier. This manuscript is made available under the Elsevier user license
https://www.elsevier.com/open-access/userlicense/1.0/
Keywords: causality; economic growth; environmental taxes; environmental technological
innovation.

1. Introduction
As the world is facing environmental challenges that also impart adverse side effects on
countries’ economic development, the desire and capacity to meet these challenges have grown
around the globe over the past decades [1–3]. Addressing the environmental difficulties faced by
countries relies on the use of current technologies and know-how for environmental remediation,
whose cost can be a significant deterrent [1,2]. The innovation of new techniques and
technologies for reducing environmental pollution can significantly shrink the expense of
upcoming environmental interventions [4], and environmental taxes represent one potential
instrument for achieving environmental goals and stimulating technological innovation and the
development of cleaner technologies [3,5–9]. These taxes encourage consumers to alter their
consumption patterns in a more sustainable direction by increasing the price of environmentally
harmful goods compared to goods whose impact on the environment is comparatively low
[1,10,11].
Moreover, environmental taxes increase the price of production inputs, inducing producers
to adopt more environmentally friendly technologies and processes [12]. The main objective of
environmental taxes is not to generate revenue or boost profits but to change behaviors by
enforcing accountability for environmental externalities [13]. Environmental taxes can encourage
the adoption of existing abatement measures [14] as well as providing substantial enticements for
invention as firms and individuals pursue new, cleaner results in regards to the pricing of toxic
waste. These motivations make it economically attractive to make finance in research and
development (R&D) schemes to advance technologies either directly by the polluter or by third-
party innovators [8,15].
How environmental taxes ultimately affect technological innovation is a controversial issue
within environment and development literature and in concrete policy debate relating to the
design of environmental taxes [15]. Previous studies on environmental policy have focused
mainly on microeconomic aspects and have been based on particular households, firms, or
markets [16]. After 1960, a large body of literature developed the theory of externalities and
comparative analysis of environmental policy instruments [16,17]. As a result, currently, many

2
studies consider environmental problems from a macroeconomic point of view [3,8,16]. While
governments have proposed interventions including subsidizations, direct regulation, and public
abatement policies for remedying destructive pollution externalities, there is conjecture that
tightening environmental policies tends to crowd out private expenditures, including investment,
resulting in adverse effects on economic growth [15]. The majority of previous research, on the
other hand, looked at the relationship between environmental taxes and technological innovation
in a qualitative way.
The goal of this study is to clarify both the relationship and association between
environmental taxes and technological innovation along with the direction and strength of these
relationships using country-level panel data instead of micro or firm-level data employing
second-generation group mean estimation techniques.

2. Background and Literature Review

To address negative externalities, governments sometimes take measures including
subsidies, direct regulation, or public abatement policies. However, some argue that tightening
environmental policies would crowd out private expenditures, including investment, causing
adverse economic growth. As a result, environmental taxes are levied as a policy instrument to
address the externalities of climate change [15,18]. Researchers have revealed that the levying of
environmental taxes can influence the environment, economy, and the use of resources toward
ensuring green development. Studies suggest several effects of environmental taxes on economic
advancement. For example, it has been shown that the reform of environmental taxes causes an
upsurge in economic growth in emerging economies [19]. This type of economic progress is
generated by environmental production externalities and the shifting of taxes toward revenue
[20]. Environmental taxes are typically levied to address the issues of free-ridership and
externalities. These types of taxes safeguard the environment by combating negative externalities
and green or pollution taxes further act to promote technological innovation to fight climate
change issues [18]. However, environmental taxes may also have an adverse effect on economic
growth when the impact of such taxes is comprehensively evaluated, incorporating
socioeconomic and environmental measures [4]. There is also a body of research that suggests
that imposing environmental taxes is ecologically beneficial and improves environmental quality
by reducing carbon emissions, i.e., taxes control the pollution level and reduce the damage to the

3
 Table 1. List of carbon tax implementing nations.

ecological environment [21–25]. Therefore, recently, many nations are implementing carbon tax
initiatives for environmental protection and reducing carbon emissions (see Table 1).

4
 Country Name of the initiative Tax type Status Jurisdiction Year of
covered implement
ation
Finland Finland carbon tax Carbon tax Implemented National 1990
Poland Poland carbon tax Carbon tax Implemented National 1990
Norway Norway carbon tax Carbon tax Implemented National 1991
Sweden Sweden carbon tax Carbon tax Implemented National 1991
Denmark Denmark carbon tax Carbon tax Implemented National 1992
Slovenia Slovenia carbon tax Carbon tax Implemented National 1996
Estonia Estonia carbon tax Carbon tax Implemented National 2000
Latvia Latvia carbon tax Carbon tax Implemented National 2004
Switzerland Switzerland carbon tax Carbon tax Implemented National 2008
Iceland Iceland carbon tax Carbon tax Implemented National 2010
Ireland Ireland carbon tax Carbon tax Implemented National 2010
Ukraine Ukraine carbon tax Carbon tax Implemented National 2011
Japan Japan carbon tax Carbon tax Implemented National 2012
United Kingdom UK carbon price floor Carbon tax Implemented National 2013
France France carbon tax Carbon tax Implemented National 2014
Mexico Mexico carbon tax Carbon tax Implemented National 2014
Spain Spain carbon tax Carbon tax Implemented National 2014
Portugal Portugal carbon tax Carbon tax Implemented National 2015
Chile Chile carbon tax Carbon tax Implemented National 2017
Colombia Colombia carbon tax Carbon tax Implemented National 2017
Argentina Argentina carbon tax Carbon tax Implemented National 2018
Canada Canada federal fuel Carbon tax Implemented National 2019
charge
South Africa South Africa carbon tax Carbon tax Implemented National 2019
Luxembourg Luxembourg carbon tax Carbon tax Under National TBC
consideration
Netherlands Netherlands carbon tax Carbon tax Under National TBC
consideration
Source: World Bank- Carbon Pricing Dashboard [30]
There is some evidence that environmental taxes are only effective in reducing carbon dioxide
emissions in coordination with advanced technology development at a reduced relative cost

5
[5,6,26–28]. From the point of view of resources, higher environmental taxes play a vital role in
reducing the use of limited resources within countries [29]. Also, it has been identified that the
influence of these taxes on firms is non-monotone; i.e., the initial rise in taxes can motivate firms
to pursue greener technologies, while further upswings in such taxes may deliver adverse output
results [30].
Policies that motivate ecological R&D and technological modernization provide companies
with an incentive to protect the environment while maintaining their competition in the market
[9,31–33]. Laffont and Tirole [34] revealed that environmental taxes or permits could stimulate
firms to over-invest in eco-friendly innovation, aiming to bypass the monetary burden that
reduces social welfare. Nonetheless, environmental taxes alone are not capable of encouraging
firms to justify positive R&D externalities; hence, firms tend to underinvest [9]. A parallel
conclusion is obtained by Carraro and Filar [35], who apply a manufacturing organization model
of dynamic modernization. They concluded that firms have a propensity to make slow innovation
in place of underinvestment when an environmental tax is the only policy instrument employed.
On the other hand, a number of studies suggest that environmental tax policies may possibly
enhance economic growth through different channels. Abdullah and Morley [3] suggested long-
run causality from economic development to augmented revenue due to environmental taxes in
OECD countries using panel causality tests. Besides, investment has been found to be probable
to encourage firms to cultivate or adopt innovative technologies [9,36]. Nakada [37] showed that
as environmental taxes reduce revenues of intermediate firms, the induced shrinkage in
productions (e.g., intermediate inputs) provides more capital to R&D programs resulting in
technological innovation. Further, the quality-enhancement model of Aghion and Howitt [38]
and Ricci [39] describe a constructive growth consequence of green taxes, provided that the
newly created technologies are more environmentally benign than current technologies. Goulder
and Schneider [40], Goulder and Mathai [41], and Buonanno et al., [42] established the cost-
effectiveness of induced technological changes for attaining target levels of emission reductions.
This finding suggests that the enforcement of environmental taxes can progress productivity
through technological changes and, thus, affect the overall cost of environmental policies. This
result also raises the question of how environmental taxes accelerate technological advancement
from a macroeconomic point of view.

6
 A potential flaw in the existing literature is that experiential importance has typically been
placed on firm-based time series data with small sample sizes from a micro perspective. In this
study, as a result, we aspire to add to the current literature by measuring the impact of
environmental taxes on environment-related technological innovation in a panel cointegration
approach considering cross-sectional dependence. Empirical concentration is provided to
investigate the effect of environmental taxes on the advancement of technologies relevant to the
environment using panel data from high and middle-income 42 countries. We apply advanced
econometric methodologies for this empirical analysis and find long-run relationships using
second-generation group mean estimation techniques such as the common correlated effects
mean group (CCEMG) [43], augmented mean group (AMG) [44,45], along with the fully
modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS)
methodologies.
The motivation for this study is in two parts. First, the rapid expansion of technological
innovation under varying policy approaches identified the need for a study of the role of
environmental taxes on technological innovation from an integrated perspective. This part aims
to uncover the interplay between technological innovation and environmental taxes, which
stimulates economic growth, and environmentally relevant technologies that reduce carbon
emissions. Second, there is a need both in an applied sense and for academia to quantify the
effect of environmental taxes on technological innovation. The majority of previous studies were
conducted based on qualitative approaches, while quantitative research is comparatively rare.
Therefore, this study aims to explore the evidence behind whether or not environmental taxes
lead to environmentally relevant technological innovation by using a panel data analysis of 42
high and middle-income countries from 1995 to 2018.

3. Empirical modeling and data sources

3.1 Conceptual framework
In order to develop the econometric model, here, we outline the conceptual framework,
which plays a vital role in determining the appropriate variables for use in this study.
Environmental taxes have been shown to work as a useful policy tool for reducing greenhouse
gas emissions [46,47]. A negative relationship between CO2 and environmental tax reforms has
been identified [48], as environmental taxes tend to tax carbon emissions as the major source of
greenhouse gas emissions [49]. Several studies [50–52] have demonstrated the efficiency of

7
environmental taxes, while some indicated that environmental taxes have only a marginal effect
on greenhouse gas emissions [53]. Different data analysis models such as the GCAM model, the
CGE model, the input-output model, and the OSE 2000 model have proposed examining the
connection between environmental taxes and carbon dioxide emissions [54–57]. Miceikiene et
al. [58] recently examined whether environmental taxes improved the quality of the environment
and indicated that these taxes are effective when prioritization is granted for technological
innovation in the energy and environmental sectors.
Additionally, research into the linkage between environmental technology and carbon
dioxide emissions is becoming prevalent and can be split into two key types: 1) the effect of
environmental technology on reducing carbon emissions and 2) supporting cleaner sources of
energy. Sun et al. [59] analyzed the effect of environmental patents on carbon dioxide emissions
and argued that environmental technology innovation dramatically reduces carbon emissions. By
examining the growth of environmental technology, Yang and Li [60] proposed that
environmental technologies minimize carbon emissions as the positive impact of environmental
progress in technical fields prevents environmental pollution, using China as a case study.
Kahouli [61] examined Mediterranean economies between 1990 and 2016 and inferred that
investments in technological advancements have a negative association with carbon dioxide
emissions. This finding indicates that environmental technology innovations are preventing
environmental degradation, as the studied nations have extensively promoted R&D investment in
green technology to reduce greenhouse gas emissions. Fernández et al. [62] analyzed the
situation in the European Union, the United States, and China and claimed that expenditures on
R&D in the United States and the European Union were crucial for carbon reduction while they
had an adverse impact on the economy of China. Furthermore, these authors proposed that R&D
investments in environmental technology development represent a reasonable contribution
toward minimizing carbon emissions. Likewise, GDP growth is one of the key macroeconomic
indicators in national policy making, as the main economic target continues to be the
achievement of a desired growth rate. Ecological and environmental costs, however, cannot be
disregarded. Consequently, the economic growth-technological innovation interface has attracted
the interest of policy makers and scholars in recent years.

3.2 Econometric model

8
 Based on the conceptual framework and literature review, we apply the following model to
evaluate the relationship between environmental taxes and technological innovation considering
the economic growth (GDP) and research and development (R&D) expenditure as the control
variables:
ETIit = f ( ETit , GDPit , RDit ) (1)

In equation (1), ETI represents the environment-related technological innovation, and ET

denotes the environmental taxes, GDP indicates economic growth, and RD denotes research and
development expenditure. In order to discover the relationship between variables of interest, a
basic multivariate structure is used. At the same time, we considered the natural logarithms of
variables to minimize variability and to smooth the data. This conversion also helps to reduce
autocorrelation and heteroscedasticity issues and to provide findings that are more accurate and
consistent than those from a simple linear form. The log-linear form of the model is presented in
equation (2).
ln(ETI )it = τ 0 + β ln(ET )it +τ1 ln(GDP)it +τ 2 ln(RD)it + εit (2)

Where i (=1……, N), t (=1……, T) represent the analyzed countries and time (year of
investigation), respectively. β , τ 1 and τ 2 indicate the coefficients of technological innovation,
economic growth, and expenditure on research and development, respectively. ε it is the random
error term affecting technological innovation. Our attention is focused on the coefficient β,
which measures the partial effect of environmental taxes on technological innovation.

3.3 Data Sources

Twenty four years of annual data from 1995 to 2018 were collected, including environmental
taxes in millions of USD, environment-related technological innovation, i.e., the number of
patents in environment-related technologies, economic growth via per capita GDP, and gross
domestic expenditure on research and development for 42 high and middle-income countries.
The number of patents is a commonly used indicator to capture technological innovation levels
[36,63–65]. The 42 high and middle-income countries analyzed in this study were chosen based
on data availability for all series in this analysis. The study was conducted using balanced panel
data with N * T = 1008 observations where N=42 and T=24. A list of the nations analyzed and
their summary statistics are provided in Appendix A.
9
 Environmental taxes (ET) are measured in millions of USD and used as a proxy for the
collection of environmentally related tax revenue. The number of patents in environment-related
technologies per annum is used as a proxy to measure the progress of environment-related
technological innovation (ETI). Per capita GDP is used as a proxy for the real income level of
the selected countries. Gross domestic expenditure on research and development (R&D) is
measured as a percentage of GDP. Environment-related patent data, environmental tax, and gross
domestic spending on research and development were extracted from the OECD database. The
remaining variable, per capita GDP, was extracted from the World Development Indicators [66].
Table 2 provides a comprehensive overview of variables and their sources.

Table 2. Details of considered variables and data.

Variable Notation Definition Measure Data source
Environmental ET Environmental taxes are measured in Millions USD OECD
Tax millions USD and used as a proxy for database
the collection of environmentally
related tax revenue
Environment- ETI Technological innovation is Nmber of patents OECD
related considered as the number of patents in in environment- database
technological environment-related technologies related
innovation technologies
Economic GDP Per capita GDP is calculated as the USD per capita World Bank
growth gross domestic product (in constant indicator
2010 USD) divided by
midyear population
Research & RD The gross domestic expenditure on % of GDP OECD
development research and development (R&D) is database
measured as a percentage of GDP

3.4 Methodology

10
 Advanced econometric methods are employed to identify whether there is long-run and
dynamic causality between environment-related technological innovation and environmental
taxes. The methodology includes the following steps: 1) The cross-sectional dependence test is
conducted by using Breusch and Pagan LM test and the Pesaran CD test. 2) The stationarity
assumptions of the selected variables are studied employing second generation panel unit root
tests; namely, CIPS and CADF 3) If the non-stationarity of these variables is confirmed, the third
step tests whether cointegrating relationships exist using three suitable panel cointegration
methods such as Pedroni, Kao and Westerlund. 4) Following the confirmation of cointegration
among variables, parameters are estimated via the second-generation group mean estimation
techniques such as common correlated effects mean group (CCEMG), augmented mean group
(AMG), along with the fully modified ordinary least squares (FMOLS) and dynamic ordinary
least squares (DOLS). 5) Lastly, the Dumitrescu and Hurlin panel causality test is utilized to
examine the causal relationships among variables. Figure 1 depicts the methodological
framework in detail.

11
Figure 1. Methodological process for evaluating the effect of ET, GDP, and RD on ETI.

12
3.4.1 Cross-sectional dependence tests
The effect of variables on one nation can interfere with other nations due to globalization and
economic collaboration. The relationship among the countries can lead to a cross-sectional
dependency problem in panel data. The assumption of cross-sectional independence is one of the
drawbacks of past analytical techniques. The research findings from such techniques could be
biased if the presence of cross-sectional dependency is not addressed in the panel data [67,68].
To overcome this situation, we performed cross-sectional dependency tests at the beginning of
our study. Breusch and Pagan's [69] LM test and Pesaran's [70] CD test are used to identify the
cross-sectional dependency in the study. The null hypothesis is defined as the independence of
cross-sectional units, whereas the alternative hypothesis is stated as dependency between cross-
sectional units.
Breusch and Pagan LM test statistics are measured based on the following equation:
N −1 N (3)
LM BP = T ∑ ∑ rˆ
i =1 j = i +1
2
ij

The LM test is inappropriate in the case of a reasonably large value of T. As an alternative,

Pesaran suggests a CD test to solve this problem as follows:
 N −1 N  (4)
∑∑
2T
CDP =  rˆij2 
N ( N − 1)  i =1 j =i +1 
 

In Eq.(3) and Eq.(4), i and j represent the country, T indicates time, N is the sample size (No. of
countries) and rˆij2 reflects the cross-section correlation of the error calculated from Ordinary

Least Square estimates.

3.4.2 Second generation panel unit root tests

The panel unit root test is used to find the order of integration of the panel data. This method
identifies whether the variables are non-stationary (unit root) or not. There are a number of first-
generation panel unit root tests utilized by researchers, such as the LLC test by Levin et al. [71],
IPS test by Im et al. [72], ADF test by Dickey and Fuller [73], and PP test by Phillips and Perron
[74]. However, second-generation panel unit root tests such as CIPS and CADF are used to find
the most accurate and reliable results for solving cross-sectional dependency. Regression of
cross-section augmented Dickey-Fuller (CADF) is defined by Pesaran [75] as follows:

13
 ∆X it = Ai + Bi X i,t −1 + Ci X t −1 + Ci ∆X t + eit (5)

Where ∆ indicates the difference operator, X is the target variable, and eit represents the random
error term. Using CADF, Pesaran suggested the following cross-section augmented IPS (CIPS)
test:

N (6)
∑ CADF
1
CIPS = i
N i =1

The null hypothesis implies that every variable has a unit root versus the alternative, which
indicates that in the panel, at least one variable is stationary.

3.4.3 Panel cointegration test

If the series is non-stationary, a test of cointegration can be employed to identify the long-
run relationship within the variables. There are several panel cointegration testing techniques,
including Pedroni [76,77] Kao [78], Maddala and Wu [79], and Westerlund [80]. In the present
study, Pedroni, Kao, and Westerlund approaches have been employed. Pedroni and Kao used the
Engle-Granger approach considering the cross-section independence of the panel unit. However,
Pedroni allows for heterogeneous intercepts and trend coefficients across cross-sections, whereas
Kao specifies cross-section specific intercept and homogeneous coefficients on the first-stage
regressors [81]. On the other hand, the Westerlund technique assumes some panels are
cointegrated in their alternative hypothesis, and this approach is used to handle cross-sectional
dependency and slope heterogeneity. The average of the individual autoregressive coefficients
related to the unit root tests of the residuals for all cross-sectional units is considered for
calculating the above statistics. The above tests are based on the residuals estimated from the
long-run model, as shown in Equation 7:
m
(7)
Yit = α i + τ i t + ∑ δ ji X jit + ε it
j =1

where, i = 1,2,….N; j = 1,2,….m and t = 1,2,…..,T denote the cross-sectional units, number of
predictors and number of cases, respectively. Y (environment-related technological innovation) and
X (environmental taxes, GDP, and RD) are assumed to be integrated of order one. The parameters αi ,

14
τ i and δ ji are the country-specific intercept, trend effect, and slope coefficient of the predictors,

respectively, and ε it random error term (residual). The form of estimated residuals can be

represented as shown in Eq. (8):

ε it = ρ i ε it − 1 + u it (8)
The null hypothesis of the above tests is Ho: ρi = 1, i.e., there is no cointegration against the
alternative (H1: ρi < 1) indicates that all panels are cointegrated.

3.4.4 Estimation of long-run coefficients

The estimation of the long-run relationship can be measured when the variables are
identified as cointegrated in the panel cointegration test. In the presence of cross-sectional
dependence and slope heterogeneity, long-run coefficients can be estimated using second-
generation group mean estimation techniques such as common correlated effects mean group
(CCEMG) [43] and the augmented mean group (AMG) [44,45]. Morevoer, the CCEMG
estimator is robust to structural breaks and nonstationary unobserved common factors. The
estimation technique of the CCEMG estimator is as follows:
Yit = αi + βi Xit + δiYit +τi Xit + ϕi ft + εit (9)

Where Yit represents the dependent variable (ETI), X it denotes the independent variable (ET,
GDP, RD), βi is the country-specific slope on the independent variable, α i is the group fixed
effects capturing time-invariant heterogeneity across groups, ft is the unobserved common
factor with heterogeneous factor loadings ϕi and ε it indicates the error term.
To make inference for the whole panel, the CCEMG estimator is measured by calculating
the mean of every coefficient over each individual regression as mentioned below:
N ) (10)
∑β
1
CCEMG = i
N i =1
)
Where β i is the estimate of coefficient βi in Eq.(9).
On the other hand, the AMG estimator is computed through two steps. First, it combines the
unobserved common factor with the time dummies using the first difference OLS in the
following equation:

15
 T (11)
∆Yit = αi + βi ∆X it + φi ft + ∑θ DUMMY + ε
t =2
t t it

Where ∆is the first difference operator, α i represents the intercept, X it and Yit are the regressor

and dependent variables respectively, β i indicates the slope of each cross-section, f t represents the
unobserved common factor, φi is the heterogeneous factor loadings, DUMMY and θ are the time

dummies and their coefficient respectively and ε it denotes the error term.

Second, the model parameters for each cross-section are averaged across the panel, similar
to the CCEMG estimator.
N (12)
∑ β%
1
AMG = i
N i =1

Where β%i is the estimates of coefficient β i in Eq.(11).

The AMG estimator is efficient and unbiased regardless of the number of cross-section and
time dimensions in panel data [82].
In addition to the CCEMG and AMG methods, we also used two groups mean long-run
estimation techniques, namely, fully modified ordinary least square (FMOLS) and dynamic
ordinary least square (DOLS) developed by Pedroni [83,84] for estimating the long-run
coefficients in equation (1). FMOLS is known as a non-parametric technique, while DOLS is a
parametric approach, and both methods can control simultaneity bias and serial correlation.
Pedroni proposes the following equation for cointegrated panel data:
Yit = α i + γ X it + ε it (13)

Where X and Y have a long-run relationship. Pedroni [84] proposed an additional model, which
includes lagged differences as an independent variable to control for the endogenous response
effect, as shown in Eq. (14):
ki
(14)
Yit = αi + γ X it + ∑β
k =− ki
ik ∆X it −k + ε it

Where αi and γ represents the country-specific intercept and slope coefficient of regressors, respectively.

16
 ′
 
 T  T
Pedroni defines ωit = ( εˆit , ∆X it ) and long-run covariance ϕit = lim
T →∞ E 1 T  ∑ωit  ∑ ωit   . The
  t =1  t =1  
 

long-run covariance matrix is ϕit = ϕi + κi + κi′ , where, ϕi0 represents contemporaneous

0

covariance and κ i denotes the weighted sum of autocovariance. Finally, the estimator of panel
FMOLS is defined as shown in Eq. (15):
−1
1 N  T 2   (15)
= ∑  ∑ ( X it − X i )   ∑ ( X it − X i ) Yit* − T βˆi 
T
γˆ*
FMOLS
N i =1  t =1   t =1 

Where Yit* = Yit − Yi − (ωˆ 2 ,1,i / ωˆ 2 ,2 ,i ) ∆ X it and βˆi = κˆ 2 ,1,i + ωˆ 2,1,

0
i − ( ω 2 ,1, i / ω 2 ,2, i )( κ 2 ,2 , i + ω 2 ,2, i )
ˆ ˆ ˆ ˆ .

3.4.5 Dumitrescu and Hurlin panel causality test

We investigate the causal relationships between variables of interest by conducting the
Dumitrescu and Hurlin causality test to provide additional details to policymakers. This approach
helps to address the question of cross-sectional dependency and heterogeneity. The application
of this approach is also very versatile, as it could be used in both cases of N < T and N > T and in
unbalanced panels. The following model is employed to verify the causal relations between
variables of interest.
K K (16)
Yit = φi + ∑
k =1
τ i(k )Yi ,t −k + ∑
k =1
δ i(k ) X i,t − k + ε i ,t

Where φi represents the intercept term, K denotes lag length, τ i(k ) characterizes lag parameter

( )
δi = δi(1) , δi(2) ,...., δi(K ) , and δi(k ) represents the slope coefficient. τ i(k ) and δi(k ) represent the differences

between the cross-section units.

The null hypothesis suggests that the panel does not have a causal relation with the
alternative hypothesis, which states that at least one cross-section unit has a causal association. In
this test, the Wald statistic for all panels are computed by taking the average of all of the
individual Wald statistics for each cross-sectional unit:
N (17)
∑W
1
,T =
WNDH i ,T
N i =1

Where Wi ,T is the unit Wald statistic values in time T .

17
4. Results and discussion
This section presents the results for the whole sample. The results of cross-section
dependence are shown in Table 3. We may reject the null hypothesis of cross-sectional
independence for environmental taxes, environment-related technological innovation, economic
growth, and research & development based on the related p-values of LM and CD test statistics.
Therefore, cross-section dependence occurs for all variables in this research.

Table 3. Cross-sectional dependence test.

LM test CD test
Variables
Test Statistic p-value Test Statistic p-value
lnET 271.33 0.000 91.19 0.000
lnETI 171.61 0.000 75.70 0.000
lnGDP 327.21 0.000 110.62 0.000
lnRD 161.40 0.000 54.58 0.000

For the evaluation of cointegration, it is a precondition to decide whether data are non-
stationary or unit-roots. In this study, we employed two tests, namely the CIPS and CADF, to
identify the existence of unit roots in the variables. A summary of these two test results is
detailed in Table 4. The hypothesis states that the variables are non-stationary. Both tests confirm
that the hypothesis is not rejected at level, but at the first difference, the test results are
significant at the 1% level. Therefore, according to the CIPS and CADF tests, all four variables
seem to be I (1). Finally, all variables in Eq. (1) are unit-roots, and the process is I (1).

Table 4. Second generation panel unit root test.

CIPS test CADF test
Variables
Level 1st difference Level 1st difference
lnET -1.469 -2.963*** -1.077 -5.435***
lnETI -2.445 -3.801*** -1.678** -3.416***
lnGDP -2.348 -2.628*** -1.562 -5.568***
lnRD -1.827 -3.447*** -3.543 -5.229***
Significant at (* 10% ** 5%, *** 1% ) level.

18
 To find the long-run connection among the variables in Eq. (1), panel cointegration tests
have been used as the panel series in this study is an I (1) process. Results obtained from three
different panel cointegration testing approaches, such as Pedroni [76,77], Kao [78], and
Westerlun [80], are presented in Table 5. In these tests, the null hypothesis states that there is no
cointegration in the panel. Based on the results in Table 5, a long-run association among the four
studied variables is supported, rejecting the null hypothesis at the 1% level.

Table 5. Panel cointegration tests.

Methods t-statistic
Pedroni (1999, 2004)
Modified Phillips-Perron t -3.6921***
Phillips-Perron t -25.2750***
Augmented Dickey-Fuller t -23.6172***
Kao (1999)
Modified Dickey-Fuller t -10.5178***
Dickey-Fuller t -17.2555***
Augmented Dickey-Fuller t -10.0966***
Unadjusted modified Dickey-Fuller t -36.8416***
Unadjusted Dickey-Fuller t -25.6098***
Westerlund (2005)
Variance ratio -5.0632***
Significance level (* 10% ** 5%, *** 1%) for rejecting the null hypothesis of no cointegration.

After identifying a long-run association among the variables, four statistical techniques, such
as the CCEMG, AMG, FMOLS and DOLS methods were applied to estimate the long-run
coefficients in Eq. (1). Estimated coefficients and p-values of the corresponding independent
variables are presented in Table 6, where the regressed variable is environment-related
technological innovation (lnETI).

19
 Table 6. Long run coefficient estimation.

G7 OECD All 42 nations

InET lnGDP lnRD InET lnGDP lnRD InET lnGDP lnRD
0.447 -0.997 0.572 0.906 1.692 0.250 0.570 1.273 0.120
CCEMG
(0.053) (0.005) (0.021) (0.000) (0.191) (0.636) (0.000) (0.174) (0.795)
0.313 -0.699 0.474 0.862 0.942 1.070 0.782 0.996 0.997
AMG
(0.001) (0.338) (0.276) (0.000) (0.396) (0.072) (0.000) (0.248) (0.038)
1.990 1.246 2.744 1.649 -0.531 2.228 1.468 1.027 1.420
FMOLS
(0.000) (0.043) (0.000) (0.000) (0.588) (0.000) (0.000) (0.248) (0.010)
2.006 0.388 2.002 2.038 -0.863 1.419 1.523 2.296 0.115
DOLS
(0.000) (0.681) (0.046) (0.067) (0.690) (0.375) (0.116) (0.286) (0.937)
p-value are shown in parenthesis

The effect of environmental taxes on technological innovation (β) is of primary interest. All
four methods showed similar results, suggesting that environmental taxes have a statistically
significant positive effect on environmentally relevant technological innovations; for example, a
1 percent increase in environmental taxes stimulates growth in technological innovation (i.e.,
green patents) by 0.57, 0.78, 1.47 and 1.52 percent on average for high and middle-income
countries using the CCEMG, AMG, FMOLS and DOLS techniques, respectively. The
coefficient of research & development expenditure is positive, which means that if research &
development increase, the environment-related technological innovation will also increase. This
finding provides empirical confirmation of statements and conclusions from an extensive
research body that states that environmentally related taxes stimulate technology innovation with
firms responding in positive ways to market signals by developing new products (patents) to
reduce environmental degradation.

20
 The Dumitrescu and Hurlin [85] approach was also used to identify the causal relationships
between variables of interest after evaluating the panel cointegration and long-run coefficients to
ensure robustness. The findings of the heterogeneous panel causality test are presented in Table
7.

Table 7. Dumitrescu-Hurlin panel causality tests.

Independent variable
Dependent
variable lnETI lnET lnGDP lnRD
lnETI - 8.724*** 7.831*** 9.108***
(0.000) (0.000) (0.000)

lnET 9.355*** - 9.118*** 5.398

(0.000) (0.000) (0.483)

lnGDP 4.695 4.980 - 5.406

(0.790) (0.899) (0.477)

lnRD 6.322** 7.952*** 9.801*** -

(0.048) (0.000) (0.000)
* **
Significant at ( 10% 5%, *** 1% ) level and p-value are shown in parenthesis

Dumitrescu-Hurlin panel causality tests suggest causality running from environmental tax,
GDP, and research & development to environment-related technological innovation which
validated the finding in Table 6. Our study also indicates causality running from technological
innovation, environmental tax and GDP to research & development. Moreover, causal
relationships exist between environmental tax and GDP. This finding, along with the results from
the long-run coefficients detailed in Table 6, leads to a recommendation for researchers and
policymakers to utilize environmental taxes to facilitate technological innovation. These
causalities and their directions are detailed in Figure 2.

21
Figure 2. The graphic causal relationship among all considered variables based on Table 6 and
Table7. Solid arrows demonstrate variable long-run relationships with technological innovation
(referring to results in Table 6), while dashed arrows show the Dumitrescu-Hurlin causal
relations between variables (referring to results detailed in Table 7).

There is some debate regarding the positive and negative effects of environmental taxes on
the economy and environment [86]. It is suggested that a stricter environmental tax policy sinks
supply from capital stocks. However, at the same time, the stricter policy increases demand for
more environmentally positive goods, therefore increasing the capital stock and increasing both
production and consumption [87]. One example of favorable taxes might be a feed-in tariff or
carbon taxes, while a negative one might take the form of subsidization of fossil fuels (or the
incumbent energy system). Environmental tax policy reform has been employed in some
European countries, among others, over the past three decades [88]. Several studies endorse the
significance of green taxes for toxic waste reduction [89–91]. The use of environmental taxes has

22
engendered both environmental and economic benefits, including economic growth and higher
employment [20,54,92,93]. These findings demonstrate the importance of environmental taxes.
In addition, environmental taxes upturn disposable incomes by enabling a decline in labor taxes;
however, at the same time, taxes on energy goods increase energy bills for households and
enterprises [94]. Studies in European countries report a positive effect of green taxes on
employment and a weak or even negative influence on production [90,93,95].
Some researchers have recommended that imposing environmental taxes may be a successful
policy in controlling global warming [15,96]. Moreover, various studies have proposed that
environmental taxes increase the quality of the environment, which accelerates the productivity
of other inputs, stimulating economic development [3,20,97]. There is also an indication that
environmental taxes help in reducing carbon emissions [98] but have a negative effect on GDP
[4].
The design of environmental taxes has the potential to play a significant role in fulfilling the
goal of green development and technological innovation [8,99]. The level of tax is an important
issue, as a higher rate provides more substantial incentives towards innovation. Taxes imposed
nearer to the genuine source of contamination (e.g., taxes on discharge vs. taxes on automobiles)
deliver a higher probability for innovation. Nevertheless, in some situations, taxes charged
directly on pollution sources may present challenges to policymakers [2,4,100]. For instance,
environmental taxes can stimulate the implementation of known reduction measures and offer
major incentives for invention as companies and individuals look for innovative cleaner solutions
due to the price of pollution. These incentives also influence the polluter and third-party
innovators to invest in R&D activities for the development of technologies [9,101]. Moreover,
environmental taxes enhance economic growth and reduce pollution concentration as well as
regulating resource intensity by controlling firms, building consumer awareness, and advancing
technologies [8]. Therefore, companies can be motivated through environmental taxes to adopt
cleaner technologies with high costs but lower carbon emissions. From the above discussion, the
policy implication is that the government should carefully design taxation policy to achieve
economic growth while maintaining environmental sustainability.
Well-structured environmental taxes may provide a clear price on environmental degradation
and, therefore, should address many issues associated with environmental externalities.
Environmental taxes provide substantial incentives for innovations moving toward market

23
acceptance. However, some obstacles may require additional policy instruments; for example,
individuals may be reluctant to change their behavior in a substantial manner, unsure of whether
the increased cost of products will incentivize a reduction in carbon for all agents. Thus,
information sharing and regulations are required to help in complementing environmental taxes
and boosting their impact. It is also clear that innovation policies alone may not sufficiently
address some of the targeted environmental issues. If the policymaker is confined only to
taxation policy, then selecting a tax level that optimizes social welfare may stimulate the
selection of green technologies. However, differing levels of socio-environmental awareness
may cause some consumers to continue to choose ‘dirty’ technologies [101]. Therefore, an
optimal approach may be to ensure a strong environmental policy that addresses the taxes
imposed on environmentally detrimental goods as well as policies that encourage innovation.
Another envisaged roadblock is the implementation of environmental taxes in countries that face
significant political and economic challenges [12]. For instance, regressive taxes specifically
imposed on water and energy may create social concern among citizens such that governments
may be required to modify tax policies in order to lessen the burden on low-income household
groups. Besides environmental taxes, governments may also choose to support R&D activities
that prompt technological innovation in line with national goals.
The present study details, for the first time, the evidence that environmental taxes lead to
technological innovation by using a cross-country panel data analysis of high and upper middle-
income countries over the period of 1995-2018. The panel cointegration approach considering
cross-sectional dependence has been employed to investigate the long-run causal relationship
between environmental taxes and technological innovation. The results suggest that there is a
long-run causality running from environmental taxes towards the advancement of technological
innovation. Moreover, environmental taxes have a positive effect on technological innovations.
Besides, there is a unidirectional causality running from GDP towards enhancing technology
innovation and research & development. Our results have important policy implications for the
suitable design and reform of environmental taxes. A well-structured tax system may
significantly encourage environment-related technology development, reduce carbon emissions,
enhance environmental quality and stimulate economic growth.
Following from the evidence unearthed in this paper, it is likely that lower-income nations
can also benefit from the findings. For example, countries that are still developing may find

24
relevant lessons from their developed peers so as to shorten their path toward technological
development and the progressing of their individual transition pathways.

Figure 3. Potential innovation ‘leapfrog’ benefits for developing nations.

As shown in Figure 3, by leveraging learnings from developed nations, developing nations

may leapfrog some developmental stages and shift toward technological proficiency and positive
energy and environmental outcomes on an accelerated timeline. This is particularly relevant
concerning the implementation of proven policy approaches and also concerning policy design
appropriate to national characteristics.

5. Conclusions and Policy Implications

In this study, we investigated the influence of environmental taxes on technological
innovation among high and middle-income countries, cognizant of economic growth and
research & development. The main purpose of this study was to definitively address the effects
of environmental taxes using a panel cointegration framework considering cross-section
dependence and slope heterogeneity. The results demonstrate that environmental taxes have a
positive effect on technological innovations. Finding suggests that for a 1 percent increase in

25
environmental taxes, the environment-related technological innovation increases on average by
0.57, 0.78, 1.47, and 1.52 percent for high and middle-income countries using the CCEMG,
AMG, FMOLS, and DOLS methods, respectively. In addition, the Dumitrescu-Hurlin test
suggests causality running from environmental tax, GDP, and research & development toward
technological innovation.
Building on the results identified in this study, policy implications can be drawn, primary
among them, that environmental taxes can play a vital role in advancing technological
innovations within (in this case, high and middle-income) countries. However, the introduction
of such measures needs careful attention to the coverage and design of the taxes. For maximum
efficiency, environmental taxes must address all sources and stages of pollution, and
governments should be proactive in levying taxes that will adequately address the environmental
challenges. Also, there are chances that environmental taxes can inspire trade-exposed, pollution-
intensive activities to relocate to places where such taxes are less or non-existent [2,98]. The
single most substantial measure to address this risk could be international cooperation-building
and the deployment of similar environmental policies across markets.
Finally, notwithstanding the important results identified in our analysis, there are some
limitations worthy of exploration in future research. For instance, it was noted that technological
innovation occurs in many different forms, including the development of new technologies,
optimizing existing technologies, and hybrid approaches. Patent data or R&D expenses alone are
not sufficient measures to fully account for innovation, as they cannot capture all innovative
aspects of technology development. More informal measures, for instance, interviews and firm-
level investigation, can provide a robust additional information source. The intellectual property
rights regime, the system of higher education, and cultural norms toward invention in each
country all play an important role in determining the innovation results of environmental taxes
and national innovation capacity in the 38 high and upper middle-income countries examined in
this study. These types of data are not readily available, and therefore this study does not take
them into account when undertaking panel estimates and analyses. Further research will need to
focus on additional nations and economies over extended periods as data becomes available to
enable the examination of the underlying effects on changes in environmental taxes toward
environmental externalities.

26
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Appendix A
Table A1. Summary statistics of national data.
Country Variable Mean Standard Deviation Minimum Maximum
Argentina ETI 2.967 3.062 0.000 12.600
ET 4776.186 1974.934 1756.140 8411.674
GDP 9220.468 1248.132 6854.294 10883.315
RD 0.481 0.095 0.360 0.639
Australia ETI 166.608 52.069 71.300 238.700
ET 18729.540 7701.613 10045.060 37086.590
GDP 48956.189 5746.970 38095.129 56832.051
RD 1.813 0.304 1.057 2.246
Austria ETI 113.217 53.642 45.900 211.500
ET 8290.491 2345.388 4934.079 11112.030
GDP 44689.458 3999.165 36537.994 50051.786
RD 2.402 0.535 1.530 3.140
Belgium ETI 82.308 37.900 24.600 140.700
ET 9052.974 2097.978 5661.794 11943.580
GDP 42063.061 3629.123 34767.029 47035.614
RD 2.058 0.300 1.647 2.678
Brazil ETI 44.275 30.793 1.800 82.800
ET 11773.630 7645.834 2470.323 27466.100
GDP 10081.962 1259.545 8540.077 11993.484
RD 1.097 0.115 0.961 1.343
Bulgaria ETI 5.396 3.735 1.000 15.100
ET 985.020 586.176 105.319 1787.082
GDP 5969.732 1566.777 3784.078 8674.723
RD 0.556 0.149 0.400 0.960
Canada ETI 225.629 85.257 86.900 365.300
ET 14698.210 4262.515 9469.199 21211.270
GDP 44617.158 5307.766 35996.710 51476.201
RD 1.800 0.138 1.563 2.021
China ETI 600.292 656.936 6.800 1958.500
ET 54408.660 50847.880 2042.326 143071.200
GDP 3752.057 2122.418 1224.852 7807.058
RD 1.391 0.551 0.563 2.141
Colombia ETI 6.563 5.805 0.000 18.000

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 ET 1729.859 959.779 466.668 3226.578
GDP 6023.595 1066.425 4801.069 7694.427
RD 0.195 0.061 0.120 0.323
Czech Rep. ETI 15.863 8.206 4.000 32.500
ET 3817.819 1780.270 1495.734 6306.199
GDP 18276.502 3176.473 13566.923 23800.975
RD 1.359 0.358 0.881 1.973
Denmark ETI 143.654 78.603 30.300 276.400
ET 11725.870 2478.529 7982.224 15497.160
GDP 57559.763 3899.367 49122.869 64271.878
RD 2.568 0.437 1.789 3.093
Estonia ETI 2.700 2.516 0.000 8.000
ET 423.308 302.212 37.449 1124.955
GDP 14016.438 3860.591 7209.403 19932.861
RD 1.115 0.493 0.555 2.285
Finland ETI 111.700 54.745 38.100 212.100
ET 6154.591 1588.215 3815.316 8403.326
GDP 43471.139 5135.951 31901.710 49440.855
RD 3.121 0.397 2.204 3.734
France ETI 579.125 337.009 132.300 1084.500
ET 50724.840 11394.440 31563.870 66772.320
GDP 39663.055 2690.277 33917.926 43720.026
RD 2.160 0.074 2.025 2.276
Germany ETI 1649.300 686.902 541.800 2809.900
ET 65094.190 11777.100 45390.790 81695.230
GDP 40686.494 3880.285 34786.729 47313.846
RD 2.589 0.297 2.135 3.130
Greece ETI 10.946 5.292 2.500 19.400
ET 6003.139 1941.906 3067.136 8811.948
GDP 24519.476 3021.265 19909.530 30054.889
RD 0.665 0.213 0.418 1.180
Hungary ETI 16.338 7.790 5.000 34.400
ET 2870.090 1121.085 1275.651 4758.847
GDP 12613.076 2208.242 8970.048 16793.384
RD 1.022 0.262 0.630 1.533
Iceland ETI 1.567 1.114 0.000 4.000
ET 339.909 91.191 228.382 560.165
GDP 42190.965 6040.754 30472.867 51592.655
RD 2.288 0.410 1.508 2.894
India ETI 96.913 78.593 0.000 218.000
ET 14204.640 9286.097 2901.250 33643.150
GDP 1209.789 429.271 674.620 2086.451
RD 0.731 0.065 0.601 0.859
Ireland ETI 17.600 11.176 2.400 42.300
ET 4564.655 1569.443 2038.798 6610.381

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 GDP 49952.592 11535.302 29694.647 76662.675
RD 1.275 0.190 0.997 1.608
Israel ETI 88.738 50.706 12.500 159.600
ET 5767.190 2582.063 2841.461 9759.392
GDP 29368.898 3064.652 25032.730 34749.678
RD 3.921 0.649 2.433 4.941
Italy ETI 209.667 114.301 47.500 362.600
ET 55612.160 13131.010 34576.980 77764.190
GDP 35607.654 1586.202 32863.956 38272.204
RD 1.148 0.151 0.934 1.426
Japan ETI 2392.917 1814.296 200.700 6080.300
ET 76652.030 9125.188 59891.070 94449.080
GDP 44205.907 2421.071 40368.712 48766.134
RD 3.100 0.219 2.608 3.400
Latvia ETI 1.117 1.295 0.000 5.000
ET 594.319 385.112 53.285 1208.694
GDP 10729.274 3522.757 5147.244 16263.226
RD 0.508 0.117 0.353 0.696
Lithuania ETI 2.600 2.391 0.000 8.500
ET 612.825 261.667 141.868 1097.761
GDP 11056.349 3844.399 5328.750 17742.263
RD 0.753 0.175 0.429 1.044
Luxembourg ETI 6.558 4.229 0.000 18.100
ET 1003.803 331.349 550.736 1459.810
GDP 98692.197 11420.071 74776.805 111968.349
RD 1.492 0.150 1.211 1.677
Malaysia ETI 12.254 10.589 0.000 28.400
ET 606.682 94.492 453.575 776.385
GDP 8588.080 1787.392 6277.611 12131.493
RD 0.814 0.393 0.201 1.463
Mexico ETI 21.108 13.622 1.000 48.300
ET 6022.577 5677.109 0.000 16834.440
GDP 9310.050 646.434 7717.722 10385.833
RD 0.374 0.070 0.246 0.495
Netherlands ETI 202.821 97.853 59.800 361.200
ET 23644.740 6947.404 14200.820 33118.460
GDP 48524.829 4393.476 38676.070 54894.129
RD 1.833 0.127 1.623 2.164
Norway ETI 64.038 25.401 18.800 114.000
ET 8158.764 2379.667 4868.973 11573.090
GDP 85512.715 5954.582 70409.719 92119.523
RD 1.677 0.176 1.455 2.099
Poland ETI 23.625 19.184 0.000 68.300
ET 8458.543 4212.385 2460.804 14642.620
GDP 11089.679 2995.672 6549.133 16648.768

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 RD 0.728 0.187 0.539 1.210
Portugal ETI 10.883 8.784 0.000 26.800
ET 5022.452 1003.365 3084.670 6604.293
GDP 21600.923 1396.509 18059.224 24085.416
RD 1.026 0.363 0.517 1.580
Romania ETI 6.013 7.236 0.000 37.000
ET 2561.782 1497.826 599.503 5006.118
GDP 7415.211 2143.346 4775.307 11540.623
RD 0.474 0.095 0.366 0.758
Slovakia ETI 5.083 3.357 1.000 13.200
ET 1302.357 667.513 428.619 2200.496
GDP 14430.909 3819.491 8731.685 20551.108
RD 0.706 0.198 0.447 1.163
Slovenia ETI 6.463 5.295 0.000 20.100
ET 1467.592 542.473 662.689 2252.019
GDP 21521.189 3361.130 15141.931 26760.484
RD 1.722 0.440 1.246 2.565
South Africa ETI 35.079 12.774 10.000 53.700
ET 5553.750 2685.287 2147.082 9450.520
GDP 6774.309 752.442 5615.299 7582.697
RD 0.750 0.102 0.572 0.898
South Korea ETI 555.333 475.774 21.200 1294.200
ET 23998.180 10735.340 8895.158 45215.240
GDP 20185.153 5079.427 12163.341 28157.734
RD 2.994 0.833 2.014 4.528
Spain ETI 129.138 87.956 15.500 257.000
ET 20849.030 5793.686 12145.380 28669.540
GDP 29473.238 2553.243 23737.484 32949.078
RD 1.100 0.206 0.771 1.364
Sweden ETI 203.071 78.926 120.000 343.500
ET 9911.712 3008.171 1339.264 13678.590
GDP 49575.648 6200.384 37870.919 57911.229
RD 3.343 0.204 3.095 3.874
Turkey ETI 28.875 26.462 0.300 89.300
ET 17998.000 10316.090 2765.841 33416.360
GDP 10484.882 2524.450 7314.938 15190.100
RD 0.646 0.224 0.276 1.035
United ETI 428.200 177.980 175.200 712.700
ET 55939.020 12099.430 33449.690 74687.780
GDP 38497.416 3691.444 30679.537 43324.050
RD 1.616 0.048 1.534 1.729
United States ETI 2853.871 1251.976 1076.700 5062.600
ET 109134.300 16230.540 77942.730 134721.300
GDP 47401.229 4408.866 38369.162 54832.978

39
RD 2.638 0.126 2.409 2.826

40
Graphical Abstract

Long-run relationship between technological Potential innovation ‘leapfrog’ benefits for

innovation and environmental taxes developing nations