Does Economic Growth Matter? Technology-Push, Demand-Pull and Endogenous Drivers of Innovation in the Renewable Energy Industry

33 Pages Posted: 15 Jan 2015

See all articles by Sam Aflaki

Sam Aflaki

HEC Paris - Operations Management and Information Technology

Syed Abul Basher

East West University

Andrea Masini

HEC Paris - Operations Management and Information Technology

Date Written: December 1, 2014

Abstract

The paper aims to contribute to the longstanding technology-push vs. demand-pull debate and to the literature on renewable energy diffusion and renewable energy policy assessment. We argue that in addition to the traditional push-pull dichotomy, the drivers of technological change must be differentiated by whether they are exogenous or endogenous to the economic system. We maintain that a specific type of endogenous demand-pull mechanism (i.e. economic growth) is a major catalyst of environmental innovation. We apply this perspective to study the diffusion of renewable energy (RE) technologies in 15 European Union countries from 1990 to 2012. Applying different panel data estimators, we find that public R&D investments, policies supporting RE and per capita income all have a positive impact on RE diffusion, whereas the variability of policy support has a negative impact. However, we also find that economic growth is a stronger driver than either public R&D investments or policies supporting RE, and that models that do not take it explicitly into account tend to overestimate the importance of exogenous drivers. Most importantly, we note that the effect of economic growth on RE diffusion exhibits a nonlinear, U-shaped pattern that resonates with the well-known Environmental Kuznets Curve hypothesis. RE penetration remains negligible at low levels of growth whereas it increases sharply only after income per capita has reached a given threshold and the demand for environmental quality rises. Our findings have implications for policy making. They suggest that for RE diffusion to increase, government action should be directed not only at shielding renewables from competition with fossil fuel technologies but also at stimulating aggregated demand and economic growth.

Keywords: Deployment policy, Technological innovation, Renewable Energy, Environmental Kuznets Curve, Nonstationary Panel

JEL Classification: O31, O33, O38, O44, C23

Suggested Citation

Aflaki, Sam and Basher, Syed Abul and Masini, Andrea, Does Economic Growth Matter? Technology-Push, Demand-Pull and Endogenous Drivers of Innovation in the Renewable Energy Industry (December 1, 2014). HEC Paris Research Paper No. MOSI-2015-1070. Available at SSRN: https://ssrn.com/abstract=2549617 or http://dx.doi.org/10.2139/ssrn.2549617

Sam Aflaki

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

Syed Abul Basher

East West University ( email )

Aftabnagar Main Road
Plot No. A-2
Dhaka, 1219
Bangladesh

HOME PAGE: http://syedbasher.org

Andrea Masini (Contact Author)

HEC Paris - Operations Management and Information Technology ( email )

1, rue de la Liberation
Jouy en Josas, 78351
France

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