Heterogeneous Effects of Public Procurement on Environmental Innovation, Evidence from European Companies

Abstract

Although substantial studies have discussed drivers or determinants of eco-innovation including environmental policies, research on relations between public procurement and environmental innovation is rare. This paper applies the propensity score matching (PSM) method to estimate the impact of public procurement on enterprises’ decisions to introduce innovations with environmental benefits, with 2014 Community Innovation Survey (CIS) data collected from firms in 15 European countries. The findings suggest that companies with a public contract are 5.7% more likely to introduce innovations with environmental benefits. Furthermore, this paper estimates the effects perfectly matching the types of eco-innovation, firm size, cooperative partner, nations, and industrial sectors. The firms that provide goods or services to public sectors have a larger possibility to be innovative for recycled waste, water, and material for their own use or sale (by 3.3~4.5%); for reduced energy use and CO2 footprint by end users (3.1~4.2%); for reduced air, water, noise, and soil pollution by end users (5.4~5.7%); for facilitated recycling of the product after use (2.6~3.4%); and for extended life length of the product (2.9~3.4%). The eco-innovation efforts in small (<50 employees) and large (>250 employees) companies are examined to be promoted by public procurement, with the magnitude of 5.0~6.3% and 7.5~10.6%, respectively. This study provides a creative theoretical framework of “dual-impetus” to explain the effect of public procurement on eco-innovation and is one of the first empirical research studies contributing to the discussions of the emerging topic by providing a more nuanced view of the heterogeneous effect of public procurement and companies’ eco-innovation behavior.