How do composite fiscal decentralization and human development promote inclusive green innovation in G7 countries?

Abstract

The study analyzes the dynamic influences of composite fiscal decentralization index (CFD), human development, and research and development (R&D) expenditures on green innovations in G7 countries from 1990 to 2018. For empirical estimation, the study applies the cross-section autoregressive distributed lag method to resolve the issues of cross-section dependency and slope heterogeneity in the panel data. The results exhibit that CFD, human capital development, and R&D spending encourage green technologies in the long run. The short-run findings are also compatible with the long-run; however, their magnitude is smaller than the long-run except for CFD. In addition, the error correction term also indicates a negative and significant coefficient value, endorsing the conversion towards the long-run equilibrium position with a 25.3% annual adjustment rate in case of any shock in the short run. The robustness of the estimates is confirmed through the augmented mean group and common correlated effect mean group. These findings recommend that G7 countries should encourage human resources and R&D expenditures through education and renewable energy investment, respectively. In addition, local governments’ allocation of resources to promote green technologies must be monitored and regulated by a strong institutional framework.

Keywords:

• Fiscal decentralization
• human capital
• R&D expenditures
• green innovation
• G7 countries

JEL CODES:

• Q01; Q56; O32

Disclosure statement

No conflict of interest has been reported by the authors.

Additional information

Funding

This work was supported by the Achievements of cross-border E-commerce Professional Construction Project for Zhejiang Gongshang University Hangzhou College of Commerce (No.: PX2721313).