Abstract
A combination of environmental policies, i.e. governmental measures that aim to reduce the effects of organisational activities on the environment, and green innovations, i.e. novel products and processes that a company adopts to reduce its environmental footprint, have been identified as key drivers for addressing the pressing challenge of global warming. Using longitudinal data from 1831 publicly traded companies in 34 countries and 20 industrial groups over the period 2002-2020, we examine the effects of environmental policies on green innovation. We find that both market-based and non-market-based policies have a positive impact on the corporate green innovation based in emerging markets, while we find this effect to be reversed for companies in developed markets. We also conduct several robustness tests to rule out possible alternative explanations related to other variable definitions and alternative estimation techniques. Taken together, our results provide a compelling explanation for why past literature has found mixed evidence on the link between environmental policies and green innovation, by highlighting the hitherto overlooked role of economic development as a key factor for the success of such policies.