IMPACT OF ENVIRONMENTAL INNOVATION IN TRANSITIONING TO A RENEWABLE BASED ENERGY
MIX
DOCTORAL DISSERTATION
ITZE ALEJANDRA ZARATE SOLIS
MONTERREY, N.L. MEXICO DEC 2019
Impact of Environmental Innovation in Transitioning to a Renewable Based Energy Mix
By
Itzel Alejandra Zarate Solis
Dissertation
Presented to the Faculty of EGADE Business School of the Instituto Tecnológico y de Estudios Superiores de Monterrey
In Partial Fulfillment of the Requirements for the Degree of
Doctor of Philosophy
EGADE Business School
Monterrey, December 2019
Copyright © By
Itzel Alejandra Zarate Solis 2019
IMPACT OF ENVIRONMENTAL INNOVATION IN TRANSITIONING TO A RENEWABLE BASED ENERGY MIX
APPROVED BY THE MEMBERS OF THE DISSERTATION COMMITTEE
Alejandro Ibarra-Yunez, Ph.D. (Chair) Professor EGADE Business School, Monterrey Instituto Tecnologico y de Estudios Superiores de Monterrey
Teófilo Ozuna, Ph.D.
Professor EGADE Business School, Monterrey Instituto Tecnologico y de Estudios Superiores de Monterrey
Sergio Castellanos Rodríguez, Ph.D.
Professor University of California, Berkeley
José Ernesto Amorós Espinosa, Ph.D.
Ph.D. Program Director EGADE Business School, Monterrey Instituto Tecnologico y de Estudios Superiores de Monterrey
Acknowledgements
I would like to thank my advisors Alejandro Ibarra, Sergio Castellanos and Teo Ozuna, your guidance and shared knowledge made this dissertation possible. Thank you for your help,
patience and invaluable feedback. Also, I would like to thank Edgardo Ayala, faculty member of EGADE Business school, you were a constant source of support and knowledge in moments of need. I would also like to thank to the coordination of the DCA, Ana Paty Meraz and Paty Mier.
Your patience and help in averting crises will be always valued.
To my amazing family, Daddy this one is for you. You inspire me every day to be a better person and to keep pushing my limits. Mom, thanks for being there when I needed you the most, your strength was all the support I needed. To my sisters, Nata and Ami for always making me laugh and forget a little the stress of the journey. To my amazing boyfriend, Geo you are my rock. You always knew what to say and when to say it to keep me grounded and going forward. Your love, support and patience where a fundamental part of this. To my incredible friends, you made this journey the best I could ask for. With you there was no obstacle that look unsurmountable. Your constant encouragement and all the fun made my time as a doctoral student the best. To everyone at Berkeley that made my time there unforgettable. To my aunt Chela and Rhoda who were my beloved family there and who will always be my family at heart. To all the people from
BECI/CIEE thank you for all your help and advice. Thanks to Mary Collins for all her help with some of the trickiest stages of my dissertation.
Lastly, I would like to thank Tecnológico de Monterrey, EGADE Business School, the Energy and Climate research group and CONACYT for funding and making this project happen.
Abstract of the Dissertation
EGADE BUSINESS SCHOOL
INSTITUTO TECNOLOGICO Y DE ESTUDIOS SUPERIOES DE MONTERREY, CAMPUS MONTERREY
Degree: Doctor of Philosophy Program: Ph.D. in Business Administration Name of Candidate: Itzel Alejandra Zarate Solis
Committee Chair: Alejandro Ibarra-Yunez
Title: IMPACT OF ENVIRONMENTAL INNOVATION IN TRANSITIONING TO A RENEWABLE BASED ENERGY MIX
This dissertation researches environmental innovation and how it helps transitioning to a greener economy. It comprises three individual but related studies. The first study analyzes how
institutions promote environmental innovation. Its focus is on institutional pressures and their institutional context. The study finds that institutional pressures are positive drivers for
environmental innovation. Moreover, the institutional context acts as a positive moderator for the relationship between institutional pressures and environmental innovation. The second study focuses on solar photovoltaics technology (PV). It analyzes how innovation in solar PV
contributes to change the energy mix from one based in fossil fuels to one based in renewables.
This study also analyzes the effect of policy incentives in promoting innovation and the role of social acceptance in attaining the energy mix’s transition. It uses a panel data methodology with interaction and mediation effects. This last study finds that innovation in solar PV technologies
has a positive effect in transitioning to a cleaner energy mix. Moreover, policy incentives promote the development of solar innovations. Lastly, this research finds that social acceptance acts as a positive moderator in the relationship between innovation and the change in the energy mix. Lastly, the third study reviews the most relevant technological advancements related to energy technology. It studies the most relevant technologies associated with power generation, energy transmission and energy consumption. This study finds how different technological advancements are related and how different technologies must be considered to achieve a true transition to a greener economy.
Index
Acknowledgements...iii
Abstract of the Dissertation...iv
Index of Tables...viii
Index of Figures...ix
Chapter 1. Introduction and Objectives of the Research...1
1.1 Purpose...1
1.2 Object of study...5
1.3 Main Contributions...9
1.4 Research questions...11
1.5 Limits of the dissertation...12
1.6 Organization of the dissertation...12
Chapter 2. Institutional Pressures and Environmental Innovation with Social and Political Moderating Measures...13
2.1 Introduction...13
2.2 Theoretical Framework and Hypothesis Development...16
Open Access and Limited Access Orders...16
Hypothesis development...18
2.3 Methodology...24
Data and Sample...24
Measurements...27
Analysis...30
2.4 Results...30
2.5 Discussion and Conclusion...33
Summary of findings and discussion...34
Theoretical and Practical Implications...36
Limitations and Future Research...36
Chapter 3. Innovation and change in the energy mix in California...38
3.1 Introduction...38
3.2 Theoretical Framework...39
Dynamic Capabilities Theory and the Innovative Capability of the Firm...39
Diffusion of Innovations Theory...43
3.3 Hypothesis Development...47
Innovation and change in the energy mix...47
Social acceptance, innovation and change in the energy mix...48
Policy incentives and innovation...50
3.4 Methodology...53
Data and Sample...53
Measurements...54
Analysis...59
Econometric Models...64
3.5 Results...68
3.6 Discussion and Conclusions...79
Summary of findings and discussion...80
Practical Implications...82
Limitations and Future Research...83
Conclusions...84
3.7 Appendixes...86
Appendix 1. Criteria to select relevant innovations...86
Appendix 2. Type of Incentives...87
Appendix 3. Solar Community Organizations in California...88
Chapter 4. Theoretical Review of Innovation on Energy Related Technologies...89
4.1 General Overview...89
4.2 Generation...91
Solar PV...91
Wind...92
Distributed Generation...94
4.3 Transmission...95
Smart Grids...95
Energy Storage...97
4.4 End Consumption...98
Electric Vehicles...98
Smart Buildings...100
4.5 Conclusion and Further Use of the Present Review...102
Chapter 5. General Conclusion...103
6. References...107
Vita...125
Index of Tables
Table 1. Summary of Countries per Region...26
Table 2. Descriptive Statistics and Correlation Matrix...31
Table 3. Results of GLS Panel Data Estimation. Dependent Variable: Number of Patents...32
Table 4. Correlation Matrix...68
Table 5. Results of the Regression Models. Dependent Variable: Installed MW of Residential Solar Power...70
Table 6. Mediation Analysis Models...76
Table 7. Standard Errors with Sobel's Approximation...78
Table 8. Standard Errors with Sobel's Approximation for Moderated Mediation...79
Index of Figures
Figure 1. Theoretical Framework...24
Figure 2. Cost of Solar Energy in California ...42
Figure 3. Number of Solar Projects in California...43
Figure 4. Theoretical Model...53
Figure 5. Innovation vs Cumulative Innovation...60
Figure 6. Social Acceptance and Installations Non-Linear Behavior in Selected Counties...61
Figure 7. Social Acceptance vs Installations (1)...72
Figure 8. Social acceptance vs Installations (2)...72
Figure 9. PACE Financed Projects in California (1)...74
Figure 10. PACE Financed Projects in California (2)...75
Chapter 1. Introduction and Objectives of the Research 1.1 Purpose
Environmental degradation has become one of the most severe issues that humanity must deal with nowadays (Berrone, Fosfuri, & Gelabert, 2017). The main reason is an economy in constant growth and overly dependent on fossil fuels (Balsalobre-Lorente, Shahbaz, Roubaud, &
Farhani, 2018). According to the environmental economics literature the relationship between economic growth and environmental degradation behaves in an inverted U-shape fashion (Halkos
& Bampatsou, 2019; Sugiawan & Managi, 2016). Economic development leads to higher energy consumption, therefore increasing greenhouse gases (GHG) emissions (Alvarez-Herranz,
Balsalobre-Lorente, Shahbaz, & Cantos, 2017).
According to the International Energy Agency (IEA) global CO2 emissions increased at an alarming rate (1.7%) in 2018 as a result of a robust global economy and greater energy demands for heating and cooling. During the period between 2014 and 2016, the global economy was expanding; however, CO2 emissions did not grow at the pace they are growing now. During those years there were strong energy efficiency improvements and higher low-carbon technology deployment. Nevertheless, in 2017 and 2018 low-carbon options did not meet the pace to catch up with energy demand worldwide. For every 1% increase in economic output, emissions grew almost 0.5% (International Energy Agency, 2018).
The increase in CO2 emissions in 2018 is related to an increase in energy consumption (Shahbaz, Nasir, & Roubaud, 2018). In 2018, energy consumption’s average growth rate (2.3%) almost doubled, taking 2010 as reference. Demand for all fuels grew but fossil fuels account for 70% of such growth. Power generation contributed with more than half of the growth in primary energy demand. Regarding CO2 emissions, coal-fired power generation accounts for 30% of energy-related emissions (International Energy Agency, 2018). Besides the evident
environmental impact of energy demand’s growth, another relevant factor is that fossil fuels are not limitless resources. If the current growth rate continues, fossil fuel’s reserves might end up depleted in a foreseeable future.
Environmental innovation, represents a way to ensure environmental protection while pursuing economic growth (Berrone, Fosfuri, Gelabert, & Gomez-Mejia, 2013; Etzion, 2007;
Huang, Hu, Liu, Yu, & Yu, 2016; Schot & Geels, 2008; Varadarajan, 2017). When economies reach a certain development level, environmental degradation begins to diminish (Demir, Cergibozan, & Ari, 2019). Economies tend to evolve from industrial and polluting to cleaner service economies (Halkos & Bampatsou, 2019). Besides, more developed economies favor more innovative, cleaner technologies and regulatory frameworks become more efficient (Dasgupta, Laplante, Wang, & Wheeler, 2002). Decoupling between environmental degradation and economic growth can be reached through technological innovation that reduces environmental pressure from production and consumption (Popp, Newell, & Jaffe, 2010).
There are different definitions for environmental innovation. Some authors define
environmental innovation as a type of technological innovation happening within the firm in the form of new products and processes aimed at the reduction of pollution (Aguilera-Caracuel &
Ortiz-de-Mandojana, 2013; Berrone et al., 2013). Other definitions are broader, for example, the OECD defines environmental innovation as “the implementation of new or considerably
improved products or services, processes, marketing methods, organizational structures or institutional arrangements that deliberately, or as a side effect, lead to environmental
improvements” (OECD, 2010). Lastly, Kemp & Pearson (2008) define environmental innovation as “the production, application or exploitation of a good, service, production process,
organizational structure or management or business method that is novel to the firm or user and which results, throughout its life cycle, in a reduction of environmental risk, pollution, and the
negative impacts of resource use compared to relevant alternatives.” These last two definitions encompass technological innovation in the form of new products and processes and business model innovations that also lead to positive environmental outcomes. Because of its inclusive nature this dissertation uses the definition provided by Kemp & Pearson.
A characteristic of environmental innovations is its so-called “double externality”
(Rennings, 2000). First, they reduce negative environmental externalities and second, they produce positive knowledge externalities (Barbieri, Ghisetti, Gilli, Marin, & Nicolli, 2016).
Moreover, environmental innovations can be categorized in two groups. The first one includes new technologies specifically design to reduce the environmental impact of a certain product or process. The second group consists in innovations that have a positive environmental impact as a side effect (Hroncová Vicianová, Jaďuďová, Hronec, & Rolíková, 2017).
Lastly, environmental innovation is also characterized for the role policy plays in
promoting it. The development of environmental innovations is associated with high investments and risks for firms (Choi & Yi, 2018). Therefore, governments enact policies aimed at reducing risks to incentivize environmental innovation. Environmental innovation is subject to the so- called supply-push and demand-pull policies (Hroncová Vicianová et al., 2017). Supply-push policies are aimed at reducing the costs for firms to innovate. Examples are government sponsored R&D, tax credits for companies investing in R&D, and support for education and training. Demand-pull policies are actions that increase the payoff of successful innovations. In other words, the purpose of demand-pull policies is the creation of markets for the new
technology. Examples are intellectual property protection, tax credits and rebates for consumers of the new technology, taxes on competing technologies, and regulatory standards (Nemet, 2009).
Besides supply-push and demand-pull policies governments also enact policies that force firms to
comply with certain environmental standards. Such policies can also drive environmental innovation (Alvarez-Herranz et al., 2017).
Environmental innovation helps minimizing negative environmental impacts while increasing efficiency and effectiveness of production, enhancing business competitiveness, employment, and productivity (Hroncová Vicianová et al., 2017). Therefore, this dissertation has environmental innovation as its main object of study. Section 1.2 develops in more detail how environmental innovation will be studied.
1.2 Object of study
This dissertation focuses on studying environmental innovation and how it helps transitioning to a greener economy. The first part of this dissertation studies stimuli needed to spur environmental innovation. Such incentives can come from several sources; however, the focus is on stimuli coming from institutions. The first empirical study of this dissertation deals with how institutional pressures lead to higher levels of environmental innovation. Such
pressures are exerted by two types of institutions, non-governmental organizations (NGOs) and the government. Moreover, this empirical study considers the institutional context in which environmental innovation is being developed. The main hypothesis is that institutional pressures can change depending on the institutional context in which they are being exerted. In other words, the institutional context moderates the role institutional pressures play on spurring environmental innovation. This study takes a macroeconomic perspective. The difference in institutional contexts is studied across different countries.
Previous research has studied the role institutional pressures play in fostering
environmental innovation (Berrone et al., 2013; Doh & Guay, 2006; Huang et al., 2016; Sancha, Longoni, & Giménez, 2015). However, prior research has not acknowledged that institutional pressures are closely linked with their institutional context. When the institutional context changes, the way institutional pressures are exerted changes too. This research contributes in studying how the socio-political characteristics of different countries moderate the relationship between institutional pressures and environmental innovation.
Governments and NGOs exert pressure to develop cleaner technologies looking for increased welfare with less carbon footprint. Traditionally a key aspect related to economic and social development is energy access (Magnani & Vaona, 2016). However, a growing energy demand has a direct impact on environmental degradation (Shahbaz et al., 2018). Today the
highest growing source of energy demand is electricity consumption. Electricity represents more than 20% of the total final energy consumption. Almost half of the growth in primary energy demand comes from power generation. Besides 38% of global energy-related CO2 emissions come from power generation (International Energy Agency, 2018). However, energy innovation can influence energy consumption, hence, reducing CO2 emissions (Shahbaz et al., 2018).
This dissertation further focuses on energy innovation recognizing it as a key element within environmental innovation that helps economic and social development without taking a toll on the environment. From all the energy related innovations, energy generation innovations are probably the ones capable of the greatest impact since energy generation, in particular
electricity, is one of the most polluting economic activities. Only in 2018 electricity demand grew 4%. However, most of the electricity in the world is produced from fossil fuels mainly coal and gas. According to the International Energy Agency (IEA) in 2018, 38% of the electricity worldwide was produced with coal whereas 23% was produced with gas. Together these fossil fuels account for 61% of the global electricity generation. Therefore, much of the CO2 emissions in the world come from this economic activity. According to Noailly & Smeets, (2015) electricity generation produces 41% of the carbon emissions worldwide.
With the demand for electricity rapidly growing, society needs alternative power sources to meet the demand without further damaging the environment. Renewable energies have been gaining relevance in the electricity generation mix in recent years. In 2018 renewables generation grew 7%. Solar PV, hydro and wind accounted for 30% of such growth (International Energy Agency, 2018). In 2018 solar PV and wind accounted for 7% of the global electricity generation mix. Another alternative is nuclear energy. This type of energy is considered a clean energy rather than a renewable one. However, there are some disadvantages such as the radioactive
waste. Moreover, this type of energy is perceived as insecure because of the nuclear disasters that have happened in recent years.
Wind and solar appear as the best alternatives. The global weighted average cost of electricity from onshore wind fell by 23% between 2010 and 2017. It has reached prices as low as USD 0.06/kWh. However, solar PV has seen the greatest development. In the same period the global weighted average cost of electricity from utility scale PV plants fell 73% reaching costs of USD 0.10/kWh. These costs make technologies such as wind and solar competitive with fossil fuels. Innovation has played a key role in putting these technologies in a position where they can compete (Kittner, Lill, & Kammen, 2017; Zheng & Kammen, 2014a), even with their character of non-dispatchable, intermittent sources.
The second empirical study of this dissertation focuses on innovation in solar PV energy since it has been the one with the greatest development in recent years. In particular, the focus is on how innovation in solar PV technologies has contributed to the transition in the electricity generation mix, from one based in fossil fuels to one based in renewable energies. This
dissertation analyzes the case of California since it is a mature solar PV market. Moreover, this dissertation analyzes how regional policy incentives act in driving innovation in solar
technologies. Such regional policy development is observable in the Californian market. Lastly, it gives the opportunity to study how the social context affects the deployment of solar
technologies. In other words, how social acceptance acts as an enabler between innovation and the actual deployment of solar technologies.
Lastly, this doctoral research incorporates a literature framework of technological
innovation on energy related technologies. The topics covered previously in this dissertation had a narrower focus. On the one hand, the first empirical study analyzed environmental innovation,
without making any difference among technologies. On the other hand, the second empirical study focused only on innovation in solar photovoltaics.
The last part of this dissertation intends to broaden the focus towards technological innovation for the electricity market. As was mentioned previously, the main goal of this doctoral research is to study how innovation contributes into transitioning to a greener economy.
However, this transition does not happen with the intervention of only one technology or without recognizing all the technologies available. Technologies interconnect and the development of innovations in one area might lead to further developments in other areas.
Therefore, it is relevant to analyze the innovation landscape surrounding innovation on energy related technologies. It is important to know which and how technologies are being developed to fully understand how energy transitions happen. This doctoral research does so by identifying the most relevant technologies being developed at different levels of the electricity market. The framework recognizes three levels within electricity markets, electricity generation, transmission and end-use or consumption. These three levels do not exist independently from one another. Such connections are further highlighted throughout the framework.
This dissertation emphasizes the role of innovation in transitioning to a greener economy and how different factors create the proper environment for innovations to have the greatest impact. It shows how different factors interact to accomplish a greater development of clean technologies. Technological innovation alone cannot do the work. It needs an environment in which such innovation is fostered. Institutions and policies need to be aligned with the goal of transitioning to cleaner economies. Moreover, society also plays a major role in realizing the full potential of environmental innovations. For a real transition to happen all these elements need to be coordinated and committed to the technological development looking for an increased welfare of society.
1.3 Main Contributions
This dissertation contributes to the understanding of how innovations drive societal transitions. In particular, to how environmental innovation promotes a change towards cleaner, greener economies. It does so first by studying institutional drivers to environmental innovation.
In other words, how institutional settings drive greater development in environmental
innovations. This dissertation contributes by recognizing the role the institutional context plays in shaping institutional pressures. Institutional contexts around the world are far from
homogeneous, therefore acknowledging those differences can lead to better policy development that ultimately leads to higher levels of environmental innovations.
Moreover, this doctoral research contributes to the study of a specific technology (solar PV) and how innovation related to this technology helps the deployment of solar energy.
Moreover, this dissertation analyzes how policy incentives promote the development of solar PV innovations and the role social acceptance plays in the deployment of solar energy.
The contributions of this study are threefold. First, this study differentiates between different types of innovation, namely product, process and business model innovation. So far, this approach is novel in the literature. The extant literature analyzes mainly the role of technological innovation. However, studies do not differentiate between product or process innovation.
Moreover, only a few studies have investigated market innovation and its relationship with the uptake of renewables (Engelken, Römer, Drescher, Welpe, & Picot, 2016).
Second, this dissertation proposes to analyze policy incentives with greater granularity.
The role policy incentives have in promoting environmental innovation has been studied
(Johnstone, Haščič, & Popp, 2010). However, much of this research concentrates in cross-country comparisons. Moreover, this research contributes by analyzing separately the role of incentives in different types of innovation and how these types of innovation ultimately impact in the change
in the electricity generation mix. Such differentiation allows for interesting comparisons in terms of which type of innovation incentives are promoting.
Third, this dissertation includes social acceptance as a moderating variable in the
relationship between innovation and the deployment of solar PV. Technological advancement is not the only key factor in promoting technological transitions, but social acceptance would produce a process that is self-sustained in the launch of renewables. For a technological transformation to take place, a market for the new technologies has to be created (Yun & Lee, 2015). Social acceptance can potentially be a barrier to the diffusion and deployment of renewable energy technologies (Wüstenhagen, Wolsink, & Bürer, 2007). Most of the studies analyzing social acceptance and innovation in renewable energies are exploratory (Huijts, Midden, & Meijnders, 2007; Jobert, Laborgne, & Mimler, 2007; Mallett, 2007). The approach taken in this dissertation is confirmatory and even analytical. Moreover, to the author’s
knowledge, no previous research analyzes the bridging role of social acceptance between innovation and the change in the energy mix.
Lastly this dissertation contributes by providing an overview of the innovation landscape surrounding energy related technologies. It focuses on three main areas of the energy value chain, energy generation, energy transmission and energy consumption. This dissertation summarizes recent innovation trends in these three areas. This knowledge helps to the understanding of how new technologies develop and how they are interlinked. Such knowledge could be applied to the development of sound policies aimed at the increase of innovations. Moreover, it could help in the development of technology roadmaps that help guide the energy transition.
1.4 Research questions
The overall research question of this dissertation is how environmental innovation promotes the transition to a greener economy. To fully answer to this question each section has specific research questions. Section one has as its main research question to what extent
institutional pressures impact the development of environmental innovations. Moreover, it also addresses the question to what extent the institutional context moderates the relationship between institutional pressures and the development of environmental innovation.
Section 2 addresses three main questions. First, to what extent innovation in solar PV technologies influences the change in the electricity generation mix. Second, to what extent regional policy incentives promote the development of new solar PV technologies. And third, to what extent social acceptance moderates the relationship between innovation in solar PV
technologies and the change in the electricity generation mix. Lastly, section 3 addresses the questions what are the most recent trends in energy innovations? How these innovations are interconnected? And what are the future developments of such technologies?
1.5 Limits of the dissertation
This research tackles the topic of transition to renewable energies from an innovation, institutional, policy, and social acceptance perspectives. However, it has limitations. This dissertation acknowledges the role of context in different ways. First it analyzes the institutional context and later studies the social context in the form of social acceptance. However, these are not the only contextual variable that could be considered.
Also, this dissertation does not determine optimal prices for alternative energies to pose them as competing technologies. This dissertation does not analyze either, how the prices for alternative energy technologies have diminished as a consequence from innovation nor does it propose a roadmap of where these technologies should be headed. Moreover, the definition of an optimal market or market standards is beyond the scope of this research. Furthermore, proposing an optimal energy policy mix to promote the use of alternative energies is outside the objectives of this dissertation.
1.6 Organization of the dissertation
The reminder of this dissertation is organized as follows. The second chapter develops the first empirical study of the dissertation. It analyzes how institutional pressures and the
institutional context promote environmental innovations. The third chapter develops the second empirical study of the dissertation. This study analyzes how innovation in solar PV technologies contributes to a change in the electricity generation mix to one based in solar energy. Chapter four consists of a summary of the most relevant technological advancements related to energy technologies. Lastly, chapter five concludes and recommends further lines of research derived from this doctoral project.
Chapter 2. Institutional Pressures and Environmental Innovation with Social and Political Moderating Measures
2.1 Introduction
Environmental innovation, represents a way to ensure environmental protection while pursuing economic growth (Berrone et al., 2013; Etzion, 2007; Huang et al., 2016; Schot &
Geels, 2008; Varadarajan, 2017). Researchers have investigated several aspects of
environmental innovation including their drivers (Cai & Zhou, 2014; Dögl & Behnam, 2015;
Hartmann & Uhlenbruck, 2015; Li et al., 2017); firms’ characteristics affecting their support for environmental innovation (Amore & Bennedsen, 2016; Cainelli, De Marchi, & Grandinetti, 2015; Yang, Wang, Zhou, & Jiang, 2018); and institutional context variables impacting
environmental innovation (Chen, Cheng, & Dai, 2017; Hyatt & Berente, 2017; Nesta, Vona, &
Nicolli, 2014; Shinkle & McCan, 2014). One aspect of the institutional context widely studied is institutional pressures.1 Most of the research concentrates on how they foster environmental innovation (Berrone et al., 2013; Doh & Guay, 2006; Huang et al., 2016; Sancha et al., 2015;
Yalabik & Fairchild, 2011; Yang et al., 2018; Zhu, Cordeiro, & Sarkis, 2013; Zhu, Sarkis, &
Lai, 2013). Some research has evaluated moderation and mediation effects affecting
environmental innovation. However, these studies used firm’s characteristics as moderation or mediation variables. Their focus was on internal characteristics rather than in characteristics of the socio-political environment (Chakraborty & Chatterjee, 2017; Kawai, Strange, &
Zucchella, 2018; Liao, 2018; Zhu, Cordeiro, et al., 2013).
Although academic research has explored in which ways institutional pressures act as drivers for environmental innovation, little is known about how their role change in different
1 For this research institutions are defined according to North’s institutional economics theory as humanly devised constraints needed to structure political, economic, and social interaction. Their purpose is to create order and reduce uncertainty. Moreover, institutional pressures are understood as drivers that create isomorphism in organizational strategies, structures, and processes (DiMaggio & Powell, 1983).
countries. Institutional pressures have a close relationship with the institutional context, because the institutional context shapes or modifies institutional pressures (Dögl & Behnam, 2015; Doh & Guay, 2006).
Moreover, the quality of institutions changes across countries, suggesting that the impact of institutional pressures on environmental innovation changes depending on the country’s context. Social and political conditions of a country hence dictate its institutional context. These conditions determine if a country is considered of an open or limited access order (North, Wallis, Webb, & Weingast, 2011). A limited access order is an institutional context in which the “elites” prevent the entrance of new players through manipulation and control over the economic and social rents they face. On the other hand, an open-access order is an institutional context that promotes competition through well-established institutions (North et al., 2011). These different social and political conditions across countries affect the way each country pursues environmental innovation.
This study extends previous research by analyzing how the relationship between a specific type of institutional pressure (coercive pressure) and environmental innovation changes across countries. Coercive pressure refers to pressures exerted by powerful stakeholders
(Glover, Champion, Daniels, & Dainty, 2014). It is defined as pressures by external forces, such as other organizations, on which an organization is dependent. It also refers to pressures organizations feel to comply with the cultural expectations from society (DiMaggio & Powell, 1983; Mizruchi & Fein, 1999). Moreover, the study analyzes coercive pressure exerted by two different institutions: governments, and NGOs2. Governments exert coercive pressure through their regulatory enforcement while NGOs exert coercive pressure through the intensity of their
2 This doctoral research considers NGOs classified in Cluster I (Categories A-D) by the Union of
International Associations because of the size of the organizations comprised and thus its ability to exert pressure on firms to innovate. Cluster I include federations of international organizations, universal membership organizations, intercontinental membership organizations and regionally defined membership organizations.
activity. Moreover, this research studies the moderating effect of the institutional context created by the social and political conditions of each country. Corruption and freedom of the press are used as proxies for the social and political conditions in each country.
This study’s relevance is that it emphasizes the role of the institutional context in shaping institutional pressures. Previous research assumed that the institutional context is homogeneous, which is certainly inaccurate. Hence, this research advances theory proposing that institutional pressures change depending on the institutional context. Moreover, since institutional pressures change so does the effect of institutional pressures on environmental innovation.
This research has practical implications as well. It provides insights into important context characteristics that should be considered by policymakers — knowing the levels of environmental innovation change depending on the institutional context may inspire the
creation of better regulations aimed at overcoming institutional differences. Thus, having better regulation would lead to a greater commitment by countries towards environmental innovation.
The analysis was conducted using a panel data analysis. The sample consisted of yearly observations from 2012 to 2014 of 84 countries. The sample only included three years of observations because of changes in the measurement methodology for the corruption variable.
These changes impede the comparison between data from 2012 onwards with data from previous years. Hence the time trend and dynamics can only be considered tentative or incipient. Findings suggest a positive relationship between both regulatory enforcement and NGOs’ activity on environmental innovation. Regarding the moderating effect of press freedom, the study finds a moderating effect on the relationship between regulatory
enforcement and environmental innovation. High levels of press freedom increase regulatory enforcement leading to higher levels of environmental innovation.
The study found a significant moderation effect of corruption on the relationship between regulatory enforcement and environmental innovation as well as in the relationship between NGO’s activity and environmental innovation, with some unexpected results.
The remainder of this study is structured as follows; section two develops the theoretical framework. Section three explains the data and methodology. Section four summarizes the empirical results, and finally, section five concludes and discusses methodology and results.
2.2 Theoretical Framework and Hypothesis Development Open Access and Limited Access Orders
This research draws on institutional economics as the theoretical framework, particularly on Douglas North’s and colleagues’ research regarding limited and open access orders. North defines institutions as “humanly devised constraints that structure political, economic and social interactions” (North, 1991). These constraints divide into formal and informal. On the one hand, formal constraints include constitutions, laws, property rights, etc. On the other hand, informal constraints relate to sanctions, taboos, customs, traditions, and codes of conduct (North, 1991). Society understands formal rules as coercive pressures since formal entities dictate what is appropriate and force the organizations to behave in a certain way. The emphasis of this study is on coercive pressures.
Moreover, North’s framework provides a useful theory to compare between countries.
The framework proposes that “countries fall into different social orders, distinct patterns of organizing a society that allows to simultaneously understand the operation of political,
economic and other systems” (North et al., 2011). This perspective can help explain the form of institutions and the nature of organizations in a given country (North et al., 2011). The
framework recognizes that organizations are central to all aspects of social orders and that their structure changes depending on the social order (North, Wallis, & Weingast, 2006).
Limited access orders are known as “the natural state” because they are the natural response of societies to social problems (North, Wallis, & Weingast, 2009). The key
characteristic of limited access orders is that they solve social issues by political manipulation of the economic system to generate rents, limiting entry to elite groups to provide social stability and order (North et al., 2006). Regarding organizations, limited access orders support complex organizations, but restrict their numbers. The creation of rents is related to the limited ability to create organizations (North et al., 2006).
Open access orders relate to what common wisdom knows as developed countries (North et al., 2011). They sustain social order through political and economic competition.
Open access orders require strong and well-established institutions to promote competition (North et al., 2011). Regarding organizations, open access orders support unrestricted entrance to elite organizations. Unrestricted entrance fosters both economic and political competition, resulting in a great variety of complex economic and political organizations (North et al., 2006).
In this research, corruption, and press freedom serve as proxies for the quality of institutions and the propensity of a country towards limited or open access orders. On the one hand, a country with high levels of corruption and low levels of press freedom possesses characteristics associated with limited access orders. This institutional setting promotes
political and economic manipulation. On the other hand, a country with low levels of corruption and high levels of press freedom exhibit characteristics associated with open access orders.
Those characteristics promote a proper environment for competition. Regarding innovation, an institutional context which promotes competition also facilitates the development of new
technologies. Thus, in countries with characteristics of open access orders the level of environmental innovation will be higher (North et al., 2011).
Hypothesis development
Regulatory enforcement and environmental innovation
As mentioned above, formal organizations exert coercive pressure. Usually, there is a difference of power between the organization exerting pressure and the organization responding to it. The government is frequently the organization exerting this type of pressure when talking about environmental issues (Berrone et al., 2013; Etzion, 2007; Phan & Baird, 2015).
Compulsory environmental regulations represent a successful tool to promote environmental innovations (Henriques & Sadorsky, 1996; Rivera, 2004). The risk of incurring in legal sanctions gives greater motivation to pursue environmental innovations (Hoffman, 2001).
Moreover, the differences among the legal institutions in different countries point to different responses to regulations (Hartmann & Uhlenbruck, 2015). The most relevant difference is the power of governments to enforce compliance with the law (Matten & Moon, 2008). Some countries, such as the United States or Germany have a more effective judiciary system, which makes them more able to ensure compliance with the law (The World Justice Project, 2015).
Another important source of coercive pressure is the quality of the regulation itself. Some countries have a better ability to formulate sound policies with adequate sanctions to promote environmental innovation. The argument is that a government with a greater capacity to
formulate and implement laws will exert a greater pressure to pursue environmental innovation.
Hence,
H1: Countries in which governments have a greater capacity to formulate and implement laws will have higher levels of environmental innovation.
Coercive pressure exerted by NGOs and environmental innovation
The influence of NGOs on organizational behavior has experienced remarkable growth over the past 30 years (Doh & Guay, 2006). NGO activism has been responsible for major changes in corporate behavior and governance (The Economist, 2003). Their pressure aims to promote a more ethical and socially responsible behavior from business (Doh & Teegen, 2003).
The main goals of NGOs have changed over time. Around the 1950s and 1960s, their main concern was poverty alleviation. However, since the 1970s their focus has changed to an increasing concern for environmental protection and sustainable development (Riddel &
Robinson, 1996).
NGOs exert their pressure in different ways. For example, NGOs can inform the public about the impact of business on the environment. NGOs are very good at mobilizing resources;
they are used to exercising their voice and can coordinate social movements and initiatives thus exerting pressure over organizations to go beyond minimum environmental requirements
(Berrone et al., 2013). Moreover, NGOs have valuable knowledge on how to improve the environmental performance of firms (Treviño & Mixon, 2004). NGOs usually surround
themselves with experts who often have a notion of recent technological developments including those with environmental impact (Yaziji, 2004).
NGOs are not considered themselves as powerful stakeholders. Nevertheless, they can influence more powerful stakeholders to act, increasing the pressure in firms to improve their environmental performance and their commitment to environmental innovation (Berrone et al., 2017; Hyatt & Berente, 2017; Mitchell, Agle, & Wood, 1997). NGOs push firms to go to more
efforts in trying to push a green agenda. Instead of only encouraging firms to comply with environmental regulations, NGOs promote activities that go beyond, such as innovation. They see innovation as a reflection of a firm’s commitment towards environmental goals. Moreover, since NGOs usually partner with experts they are not easily fooled by non-substantial
environmental strategies. NGOs tend to regard environmental innovation as a legitimate and sustainable way to achieve environmental goals. Also, this access to experts might lead to partnerships between NGOs and firms that results in the development of innovations (Berrone et al., 2013).
Moreover, the activity of NGOs is different across countries. Usually, developed countries allow for a greater presence of NGOs in their territories; therefore, their activity is more noticeable (Union of International Organizations, 2015). Thus, the pressure exerted by NGOs on firms to pursue environmental innovations will have an impact on a country’s level of environmental innovation.
H2: Countries with greater NGOs’ activity will have higher levels of environmental innovation.
Corruption, coercive pressure and environmental innovation
Authors define corruption as arrangements that involve an exchange between two parties that have an influence on the allocation of resources and involves the use or abuse of public or collective responsibility for private ends (Macrae, 1982). Moreover, different studies regard corruption as a phenomenon that determines the institutional setting of a given country (Kwok &
Tadesse, 2006). Within the limited access and open access framework, corruption is a
characteristic found in limited access orders. As mentioned above, in limited access orders, the
institutional setting promotes political and economic manipulation, which is consistent with the definition of corruption.
Since corruption conditions the institutional context, it will also change the institutional pressures exerted within it. Particularly, the presence of corruption will modify the ability of a government to formulate and implement the law. On the one hand, in a corrupt environment, political and economic manipulation is easy to achieve; therefore, the ability of the government to enforce the law decreases. On the other hand, in a less corrupt environment the chances for political and economic manipulation decrease; consequently, the ability of the government to enforce the law increases.
This study proposes that corruption3 has a moderating effect on the relationship between regulatory enforcement and environmental innovation. In an institutional context with high levels of corruption, the regulatory enforcement will decrease, consequently the relationship between regulatory enforcement and environmental innovation weakens.
3 Corruption was measured using the Corruption Perception Index (CPI) constructed by Transparency International. In such index countries are scored in a scale of 0 to 100 where 0 is highly corrupt and 100 is very clean. This dissertation recoded the variable so that 0 corresponds to clean countries and 100 corresponds to highly corrupt countries.
H3a: Corruption will have a negative moderating effect on the relationship between regulatory enforcement and environmental innovation such that in countries with high levels of corruption, the impact of regulatory enforcement on environmental innovation will be less than in countries with low levels of corruption.
This study proposes a different moderating effect for pressure exerted by the government and pressure exerted by NGOs. NGOs’ activities consist of alleviating problems often
overlooked by the government (Vogel, 2010) or that the government finds difficult to address (Hall & Soskice, 2001). When an NGO perceives that the government is failing to do its duty, they take on the governments’ place in exerting pressure. In a corrupt environment, the
government may be an inoperative entity; therefore, NGOs replace the government in exerting pressure towards environmental innovation. In a highly corrupt environment, the relationship between NGO activism and environmental innovation will be greater than in countries with low levels of corruption.
H3b: Corruption will have a positive moderating effect on the relationship between NGOs’ activity and environmental innovation such that in countries with higher levels of corruption, the impact of NGOs’ activity on environmental innovation will be greater than in countries with low levels of corruption.
Freedom of the press, coercive pressure and environmental innovation
Media has an important role in society; they have a direct influence on public opinion.
The press monitors firm behavior and act as overseers using the threat of public exposure (Margolis & Walsh, 2003). The press can disclose information about a firm’s environmental
misbehavior and thus contribute to how the firm is perceived (Etzion, 2007; Henriques &
Sadorsky, 1996). For instance, the effectiveness of NGOs depends on the information they and the public have on the behavior of firms (Braunsberger & Buckler, 2011).
By assuming the role of overseers, the press strengthens the pressure exerted by the government and NGOs to commit to environmental innovation. The press can disclose firms’
misbehavior and can mobilize forces against firms who misbehave (Hartmann & Uhlenbruck, 2015). Therefore, in a context of high levels of press freedom, the government may find it easier to enforce the law, strengthening the relationship between law enforcement and environmental innovation. On the other hand, the effectiveness of NGOs depends on how well informed they are. Therefore, press freedom plays a key role. In an institutional context with high levels of press freedom, NGOs are more aware of what firms are doing and can act accordingly. Thus, having press freedom strengthens the relationship between NGO activity and environmental innovation.
This study proposes that press freedom has a positive moderating effect on the pressure exerted by both, government and NGOs. The relationship between law enforcement and NGO activity with environmental innovation will be greater in countries with high levels of press freedom than in countries with low levels of press freedom.
H4a: Freedom of the press will have a positive moderating effect on the relationship between regulatory enforcement and environmental innovation such that in countries with high levels of press freedom, the impact of regulatory enforcement on environmental innovation will be greater than in countries with low levels of press freedom.
H4b: Freedom of the press will have a positive moderating effect on the relationship between NGOs activity and environmental innovation such that in countries with high levels of press freedom, the impact of NGOs’ activity on environmental innovation will be greater than in countries with low levels of press freedom.
Finally, Figure 1 provides a graphical representation of the hypotheses proposed.
2.3 Methodology Data and Sample
The full data set for the study relies on secondary data collected from several sources.
Information about coercive pressures exerted by the government and control variables were retrieved from the World Bank. The Yearbook of International Organizations provided the data regarding the coercive pressure exerted by NGOs. As for the moderating variables, data on corruption and press freedom were obtained from Transparency International and the Freedom House respectively. Finally, the information about the dependent variable, innovation, was obtained from the World Intellectual Property Organization. The period covered by the sample goes from 2012 to 2014. Countries with incomplete information in any of the variables were
Figure1. Theoretical Framework Figure 1. Theoretical Framework
deleted from the sample. The final sample consists of 252 observations for 84 countries for a total of 3 years. Given that the measurement methodology of the corruption variable changed in 2012, data before that year are not comparable, for which the panel data analysis was forced to be uneven. Table 1 provides a summary of the countries considered in the sample. Countries are divided by region. The region with most of the observations was Europe, with 36 observations.
On the other hand, the region with the fewest observation was Oceania, including three countries only.
Table 1. Summary of Countries per Region
Measurements Dependent variable
The dependent variable for this research, environmental innovation, is measured as the number of patent publications4 on environmental technologies. Data was retrieved per country for each year between 2012 and 2014. Previous studies have measured environmental innovation through questionnaires (Anton, Deltas, & Khann, 2004; Christmann, 2000; Huang et al., 2016).
However, surveys rarely ask about technologies and processes specifically (Berrone et al., 2013). Besides and more importantly, since this research is set up as a cross-country analysis, the recollection of respondents would be difficult.
Several reasons make patents a better measurement for environmental innovation compared with other options like surveys (Berrone et al., 2013). First, only original and non- obvious inventions get patented (R. Kemp, 2008). Second, the information provided about the innovation allows its classification according to the technological sector, type of use, and technological characteristics. Finally, information on patenting activity by country is publicly available for long periods.
Independent variables
Regulatory enforcement. The paper operationalizes this explanatory variable using a rule of law indicator from the World Bank. The specific indicator is regulatory quality. The World Bank defines this variable as “…the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development” (World Bank, 2015). The research evaluated different “rule of law” indicators; however, they were composite
4 The number of patents was retrieved from the WIPO IP Statistics Data Center, using indicator 5 for patent grants by technology, total count by filing office and lastly selecting environmental technology. Those search criteria retrieve data on patents filed for environmental technologies in the established period and for the selected countries.
measurements that included corruption (The World Justice Project, 2015). The study needed a disaggregated measure to avoid having multicollinearity between variables, hence the use of the World Bank’s indicator.
Previous studies have measured this variable as the number of international environmental treaties per country (Hartmann & Uhlenbruck, 2015). However, given the
definition of coercive pressure and the objective of this research, the regulatory quality indicator had a better fit. Other studies used the number of inspections in a certain region as measurement (Berrone et al., 2013); nevertheless, they were single country studies. Information on the number of inspections from different countries is not available.
NGOs’ activity. This explanatory variable was operationalized as the number of active NGOs per country in each year. Several studies have used this operationalization to account for institutional pressures exerted by social organizations (Berrone et al., 2013; Hartmann &
Uhlenbruck, 2015; Sancha et al., 2015). As suggested by previous literature, only Cluster I (Categories A-D) organizations were used (Hartmann & Uhlenbruck, 2015; Lim & Tsutsui, 2012; Toffel, Short, & Quellet, 2012). The Union of International Organizations provides this classification. Cluster I organizations include federations of international organizations,
universal membership organizations, intercontinental membership organizations, and regionally defined membership organizations. Inactive or dissolved organizations and organizations with very specific structures and objectives are excluded (Union of International Organizations, 2015).
Moderating variables
Corruption. This research measures corruption in each country using the Corruption Perception Index (CPI) developed by Transparency International. The CPI was established in
1995 as a composite indicator to measure perceptions of corruption in the public sector around the world (Transparency International, 2015).
Although this index has information from several years, in 2012 its construction suffered a methodological change. Therefore, a comparison between data before 2012 and after 2012 is impossible. Hence, the study only considers the period from 2012 to 2014. The construction of this index reports high scores for countries with low levels of corruption. This study reverses the scoring subtracting the original score to the maximum score (100). Thus, the highest scores represent the most corrupt countries.
Press Freedom. Press freedom across countries is measured using the Freedom of the Press Index built by Freedom House. The 2015 edition provides reports and numerical ratings for 199 countries and territories. The index estimates the level of press freedom in each country through 23 questions and 132 sub-questions divided into three broad categories, the legal environment, the political environment, and the economic environment. The legal environment examines laws and regulations that could influence media content and the extent to which they are used. In the political environment category, the index analyzes the degree of political control over the content of news media. Finally, the economic environment category analyzes issues such as the structure of media ownership, transparency, and concentration of ownership, the cost of establishing media, etc. Together these categories try to evaluate how different entities place pressure on the information flow. The index also considers different communication channels such as print, broadcast and internet media (Freedom House, 2015).
Like the CPI, higher values in the Freedom of the Press index represent countries with low freedom. The original score was reverse coded higher values in the index correspond to countries with higher levels of press freedom (Hartmann & Uhlenbruck, 2015).
Control variables
The study includes variables to control for the possible effect of the size of the economy and how globalized and competitive each country is (Hartmann & Uhlenbruck, 2015; Ioannou &
Serafeim, 2012). The study includes the annual gross domestic product per capita for each country (GDP) to account for the size of the economy. Moreover, the study uses the variables balance of trade and trade to measure the level of globalization and competitiveness of each country. The data on all control variables are obtained from the World Bank.
Analysis
The sample is composed of 84 countries in a period of three years, giving a total of 252 observations. Therefore, the proper methodology is panel data. A Hausman specification test was conducted. The results suggest a random effects model. A log-likelihood test was conducted to test for heteroskedasticity. Also, a Wooldridge test for autocorrelation was carried out. The results suggest the presence of both, heteroskedasticity and autocorrelation. Hence this study employs a Generalized Least Squares (GLS) estimation to correct for heteroskedasticity and autocorrelation.
2.4 Results
Table 2 provides summary statistics and the correlation matrix. Summary statistics suggest high variation in all the variables. Regarding the correlation matrix, three bivariate correlations appeared near to 0.8 suggesting problems of multicollinearity. The first one is between regulatory quality and corruption (-0.86). The second is between regulatory quality and
freedom of the press (0.75). Finally, the third is between corruption and freedom of the press (- 0.69). Nevertheless, the only one above 0.8 was the correlation between regulatory quality and corruption. To correct for multicollinearity the grand centered means were obtained.
Table 3 presents the results for the GLS panel data estimation. Model 1 was estimated using only the control variables, only the gross domestic product and trade variables are significant (p<.05). Model 2 tests hypothesis one. The effect of the
regulatory quality of a country on the levels of environmental innovation is positive and significant (p<0.01). This result supports hypothesis one. A higher level of regulatory enforcement in a country leads to higher levels of environmental innovation. Model 3 tests hypothesis two. The effect of the number of NGOs on environmental innovation is positive and significant (p<.01). Hypothesis two is supported: higher levels of NGO activity in a country contribute to higher levels of environmental innovation.
Models 4 through 7 test the moderation hypotheses (3a, 3b, 4a, and 4b). Because of the multicollinearity previously explained, some variables are omitted from the models to have better accuracy in the results. Model 4 tests hypothesis 3a, the
moderating effect of corruption on the relationship between regulatory enforcement and environmental innovation controlling for NGO activity and freedom of the press. Results
Table 2. Descriptive Statistics and Correlation Matrix
suggest a significant relationship (p<0.01); however, the sign of the relationship is positive when a negative sign is expected. Hypothesis 3a is not supported.
Table 2. Results of GLS Panel Data Estimation. Dependent Variable: Number of Patents
Model 5 tests the interaction effect of corruption on the relationship between NGO activity and environmental innovation (Hypothesis 3b). The results suggest a significant
relationship (p<0.05), controlling for freedom of the press. Nevertheless, the sign obtained is the opposite of what is expected.
Model 6 tests hypothesis 4a. Freedom of the press will have a positive moderating effect on the relationship between regulatory enforcement and environmental innovation. Results suggest a significant relationship (p<0.01) and positive as expected, controlling for corruption.
Therefore, hypothesis 4a is supported. In a country with high levels of press freedom, the effect of regulatory enforcement on environmental innovation will be greater than in countries with low levels of press freedom.
Finally, model 7 tests the moderating effect of freedom of the press on the relationship between NGO activity and environmental innovation. The analysis finds a significant
relationship (p<.05) but with an unexpected sign. Hypothesis 4b is not supported.
2.5 Discussion and Conclusion
This study investigates the moderating role of political and social conditions on the relationship between coercive pressures and environmental innovation in different countries.
Coercive pressures have been studied exerted by two institutions, governments, and NGOs. On the one hand, coercive pressure exerted by the government was studied as regulatory
enforcement. On the other hand, coercive pressure exerted by NGOs was studied as the intensity of their activity. The variables corruption and freedom of the press were chosen to reflect the political and social conditions of a given country. To our knowledge, the moderating effect of the political and social conditions of different countries in the relationship between
environmental innovation and institutional pressures have never been studied.
Summary of findings and discussion
The results indicated that the pressure exerted by the government and by NGOs does have an impact on environmental innovation, supporting hypotheses 1 and 2, as suggested by previous literature (Berrone et al., 2013). Moreover, the results suggest that this relationship holds at a country level. These results make the identification of different social and political conditions that may affect the relationship more relevant.
Regarding the moderating effects, the results were less conclusive. The only moderation hypothesis fully supported was hypothesis 4a, freedom of the press has a positive moderating effect on the relationship between regulatory enforcement and environmental innovation. In countries with high levels of press freedom, regulatory enforcement is greater than in countries with low levels of press freedom as suggested by the literature (Hartmann & Uhlenbruck, 2015;
Margolis & Walsh, 2003).
The case of corruption moderator gave inconclusive results. First, the moderating role of corruption on the relationship between regulatory enforcement and environmental innovation (hypothesis 3a) gave, as a result, a significant relationship but with a positive sign. The
moderating effect proposed was negative. One possible explanation is multicollinearity (Kumar, 1975). The variables of regulatory quality and corruption had the highest correlation values in the correlation matrix (-0.86). The correlation had the expected sign (negative), high levels of corruption reflect low levels of regulatory quality. Nevertheless, the correlation value was too high possibly causing the non-expected results. Another and more feasible explanation are the small amount of years analyzed in the study. As mentioned above, the variable corruption
suffered from methodology changes in its calculation which made the comparison of more years impossible.
Moreover, the role of corruption as a moderator on the relationship between NGO activity and environmental innovation also returned non-expected results (Hypothesis 3b). In this case the unexpected results can also be attributed to the lack of data given a window of few time series observations. The number of NGO’s active in one country do not vary a lot in a period of three years. Having more years to compare might be useful to have more conclusive results.
Additionally, the correlation matrix provides useful insight. The correlation between corruption and the number of NGOs is mild and negative. The value and sign of the correlation suggest that the presence of corruption deters the activity of NGOs rather than promoting it. The alternative proposition is that in countries with high levels of corruption NGO activity is lower than in countries with low levels of corruption (Epperly & Lee, 2013). Previous arguments suggested that NGO activity was a substitute for the pressure exerted by the government when the last was plagued by corruption and failed to perform its duties. However, it is possible that NGO activity does not fully substitutes the role of the government and otherwise gets affected by its
ineffectiveness.
The results regarding the moderating effect of press freedom were more conclusive than the corruption results. As mentioned above, hypothesis 4a was supported. However, hypothesis 4b showed unexpected results. A positive moderating effect was expected in the relationship between NGO activity and environmental innovation. However, the relationship was significant, but the sign of the interaction was negative. A possible explanation is that press freedom is not necessarily what gives the NGOs power to exert more or less pressure. Press freedom allows them to exert pressure but what gives them power is the availability of information. Therefore,
