INTERNALIZING EXTERNALITIES TOWARDS SUSTAINABLE ECONOMIC GROWTH: ENVIRONMENTAL REGULATIONS VS GREEN TECHNOLOGY ADOPTION

Abstract

The interaction of economic growth and environmental sustainability has become a leading concern for policymakers, businesses, and societies worldwide in the 21^st century. In this regard, it is pivotal to design effective policies by understanding the interaction between environmental regulation and green technology adoption. The present study undertakes environmental regulations such as environmentally adjusted multifactor productivity growth and environmental related tax revenue with green technology adoption factors such as patents for development of environmental related technologies, share of renewable energy in gross final energy consumption by sector to determine the environmentally adjusted multifactor productivity growth. This study is conducted for 18 selected European Union countries. Panel econometric techniques are applied to underscore the empirical analysis while using a macro-level data that based on 15 years (2004-2018). The econometric techniques Drsicoll-kraay and Prais-Winsten robust to heteroscedasticity and serial correlation are applied. The empirical results of the data show that environmental policy stringency index, environmental taxes, patents and increasing share of renewable energy has positively increase the environmentally adjusted multifactor productivity growth. The study provides strong evidence that patents, renewable energy, environmental taxation, regulatory quality control, and good governance effectiveness are significant drivers of Environmentally Adjusted Multifactor Productivity Growth.