Interrelationships Among Environmental Regulations, Technological Innovations, and Productivity in South Korea

Abstract

Because environmental policies have increasingly become stricter in response to relevant challenges, policymakers are now paying more attention to regulations that affect productivity. Focusing on conditions in Korea, this study used the Granger causality test to investigate causal relationships between environmental regulations, technological innovation, and productivity. The main results indicate that productivity is influenced by (1) technological innovation and (2) the innovation results from strengthened environmental regulations in separate sectors (i.e., manufacturing and non-manufacturing). These findings highlight some policy implications. As the environmental protection expenditure increases due to environmental regulations, the government and companies increase the number of R&D workers and spend more on technological innovation. Meanwhile, a suitable circumstance must be established to generate product and process innovations. The government and companies should make investments to construct this circumstance in response to environmental regulations. Finally, because regulations and innovations change productivity slowly, it is important to engage in long-term environmental policy projects. [Key Words] Environmental regulation, Technological innovation, Productivity, Granger- causality, Green growth, Green Economy