Beyond borders: Assessing the transboundary effects of environmental regulation on technological development in Europe

Environmental regulation motivates producers to adopt greener and more sustainable technologies, fostering innovation in green technology. The study aims to examine the direct impact of environmental regulations (EPY) regulation on green innovation (EINV) to observe the learning effect in Europe. Therefore, this study uses a panel dataset of 25 European nations from 1994 to 2020 and employs the Spatial Durbin model to test the relationships. In addition, the study illuminates the significance of various factors, including environmental taxes, fiscal expenditure, urbanization, foreign direct investment, and research and development expenditures, in shaping the relationship between EPY and EINV. The results indicate that EPY has a significant total impact of 0.636 %, with a direct impact of 0.187 %. This direct effect incorporates both formal and informal EPY impacts on the development of green technologies. It indicates that EPY enhances EINV in Europe significantly. Furthermore, the spatial spillover effect demonstrates a substantially positive coefficient of 0.449 %, representing the learning behavior in European countries. The outcomes suggest that policymakers should consider EPY's direct and indirect effects on EINV when considering policy interventions to promote EINV in Europe.