Waste recycling patents and environmental innovations: An economic analysis of policy instruments in the USA, Japan and Europe

Since natural resources are finite, new policy instruments to sustain the most efficient processes of waste recycling are required in all countries. To this end, it is critical to explore all technology mechanisms underlying solid waste researchers and practitioners’ behaviors. The study focuses on to demonstrate the importance of knowledge diffusion between the source and destination of environmental innovations. This way, policymakers can elaborate opportune strategies to improve the efficiency of innovation activities. By analyzing a sample of 240 large international firms from the USA, Japan, and Europe, this paper discusses the extent to which innovation inputs, research and development, and relative technological spillovers affect environmental innovation—that is measured by the number of waste recycle and land fertilizers patents. The novelty of the study comes from introducing a knowledge production function approach to analyze the role of technological knowledge spillovers on waste recycling and land fertilizers efficiency at the firm level. The technological relatedness between the firms is computed through technological proximity, based on the construction of technological vectors for each firm. The results reveal a significant positive impact of external spillovers on firms’ environmental innovation levels. This finding is important particularly in terms of policy implications concerning industrial strategies; as in order to improve environmental innovation, incentives that favor industrial relatedness and establishing integration between firms are crucial.