Public green demand and green innovation: evidence from US firms

Abstract Achieving net-zero emissions alongside sustained economic growth necessitates unprecedented innovation efforts. Demand is a pivotal driver. This paper presents novel evidence concerning the relationship between public procurement for green products and services (GPP) and firm innovation. GPP widens market niches for new green goods and accelerates the adaptation of conventional goods to meet more rigorous environmental standards. This, in turn, fosters the creative response of the firm, stimulating innovation in both new green products and new green processes. The empirical analysis focuses on US publicly listed innovative companies from 2004 to 2016. The results demonstrate that increases in GPP stimulate green innovation overall, particularly process-related. Moreover, we observe that this is more pronounced in larger and older firms, as well as in those endowed with substantial knowledge and organizational capital. These results provide valuable insights for designing effective policy frameworks to expedite the green transition while ensuring economic growth.