Policy spillovers : the impact of foreign policy on domestic creation of green energy innovation

In this paper, we investigate, based on a representative sample of Swiss and German firms, the impact of foreign green energy related policies on domestic innovation activities. Under control of the respective domestic policy stringency, we find a significant positive effect of foreign regulations, foreign voluntary agreements, and foreign public subsidies. However, when we introduce foreign (policy induced) demand, the significant effects of the other foreign policies vanish. Hence, we see that foreign policy impacts domestic innovation primarily from the demand side. We further find that foreign subsidies negatively affect domestic innovation activities of foreign owned firms operating in domestic. Finally, we find that foreign policies dampen the effect of national policy initiatives. Our results therefore call for an international coordination of policy initiatives to increase the effectiveness of the respective national policies.