Environmental-economic efficiency for carbon neutrality: the role of eco-innovation, taxation, and globalization in OECD countries

Abstract

The aim of this paper is to examine the relationship between three determinants – environmental patents, environmental taxation and trade globalization – and the environmental-economic efficiency of 29 OECD countries between 2005 and 2020. Using the Global Malmquist-Luenberger index, this research computes the environmental productivity growth and its main drivers – the catch-up and the frontier shift terms. Besides, dynamic panel linear models are applied to investigate how the three institutional variables affect the dynamics of the computed efficiency indices. Results are as follows: firstly, eco-innovation is the most relevant factor in boosting the environmental productivity growth, pushing forward the technological frontier, and spurring the catch-up term. Secondly, environmental taxation is an ineffective policy instrument in promoting the sustainable growth and technological frontier advancements, having positive impacts only on the catch-up term. Thirdly, trade globalization reveals to hinder the sustainable growth and its two main drivers.