Regional Environmental Protection Investments, Cluster Ecosystems, and Firm Innovation: Evidence From Germany

ABSTRACT This paper presents an exploration of how regional environmental protection investments (EPIs) and cluster ecosystems affect the innovation performance of research and development (R&D) firms versus non‐R&D firms across regions in Germany. We develop a conceptual framework to elucidate the relationship between regional EPIs, cluster ecosystems, R&D decisions, and innovation performance of firms. We test this framework by employing ordinary least squares (OLS) and fixed effect regressions to analyze a unique sample of panel data from ORBIS and DESTATIS for the period 2009–2017. We find that in regions in which there are higher EPIs, R&D firms outperform their non‐R&D counterparts in terms of intangible assets formation. We also find that the relationship between cluster ecosystem and firm innovation performance is contingent on firm R&D engagement and specific types of regional EPIs. Additional insights reveal that there are spillover effects on firm innovation performance for non‐R&D firms belonging to business clusters and at the same time, in proximity to geographical areas that are populated by higher numbers of other cluster constituents. The results of this study contribute to our nascent understanding of innovation ecosystems and hold important implications for policymakers in terms of how to formulate effective environmental policies to promote firm innovation.