Effect of market versus nonmarket environmental policy stringency on knowledge sourcing behavior for green technology: evidence from OECD countries

Purpose The purpose of this paper is to examine firms' knowledge-sourcing behavior in green technology development with respect to the home country's market- vs nonmarket environmental policy stringency. Design/methodology/approach This paper empirically analyzes the effects of market and nonmarket environmental policy stringency on firms' knowledge sourcing activity with patent data from OECD countries during 1991-2010, across five categories of green technologies. Findings When a nation establishes more stringent market environmental policies, firms likely source more international knowledge rather than domestic knowledge about green technology, up to a point. After that level, this balance shifts (inverted U-shaped curve) due to the risks associated with greater investment costs and commerciality. Nonmarket environmental policies instead should exhibit a positive, linear relationship with international relative to domestic knowledge sourcing. This study also reveals the dynamic roles of a firm's green technological capability with market-based environmental policy stringency and a substitutive role of the capability with nonmarket-based environmental policy stringency. Research limitations/implications This study shows the effect of market and nonmarket environmental policy stringency on firms' knowledge sourcing. The findings provide meaningful implications for policymakers regarding the optimal levels of market and nonmarket environmental policy stringency that will enhance their countries' green technology development. Originality/value This paper enriches the literature of environmental policy and knowledge sourcing and offers the direction of future research of how environmental policy stringency influences a firm's knowledge sourcing for green technology development.