Improving the Environment for a Greener Future
New Horizons in Environmental Economics series
Chapter 14: Clean Technological Inventions in Japan
INTRODUCTION Technological inventions can play a key role in resolving environmental problems. However, the extent of their contribution depends on how well environmental policies are designed and implemented. In other words, successful environmental policies can be judged by the extent to which they induce environmental technological invention (Kneese and Schultze, 1978; Jaffe et al., 2003). This study seeks to identify the strength of this relationship by testing the causality between environmental regulations and inventions.1 When causality is tested, I need to consider the direction of causality (Managi et al., 2006). This is because inventions might also lead to tougher new regulations for at least two reasons. First, inventions may lead government to develop tougher environmental regulations that exploit these new technologies.2 Second, economic development might lead to an increased demand for environmental quality, that is, the environmental Kuznets curve. In the literature, there is growing evidence on the driving forces of environmental invention. These studies investigate indirect data on the relationship between the stringency of environmental regulation and development of new technologies in the last decade. The evidence suggests that patent counts and research & development (R&D) expenditures correlate with the stringency of environmental regulation.3 For instance, Lanjouw and Mody (1996) conducted a study of the US, Japan, and Germany, and found a positive relationship between environmental compliance cost (a proxy for environmental regulation stringency) and patenting of new environmental technologies (a proxy for environmental inventions). In addition, Jaffe and Palmer (1997) used US data to investigate the relationship between...