Renewable energy (RE) innovation as a trade driver: a causal analysis of developed and developing countries

Purpose This study aims to investigate the causal relationship between technological innovation and international trade within the renewable energy (RE) industry across 96 developed and developing countries from 1991 to 2022. The research examines how these dynamics vary across economic contexts and informs policy approaches that support climate change mitigation and carbon neutrality goals. Design/methodology/approach The study uses a panel Granger causality test based on a vector error correction model (VECM) to explore long-run and short-run relationships between RE innovation and trade. The analysis covers 54 developed and 42 developing countries, using data from patent grants and trade volumes in the RE sector, and includes stationarity and cointegration tests to ensure robust results. Findings The results indicate a long-run equilibrium relationship between RE innovation and trade in both developed and developing countries. However, in the short-run, RE innovation significantly drives trade activities in developed countries, suggesting a unidirectional causality from innovation to trade. In contrast, no significant short-run Granger causality is observed in developing countries, highlighting the influence of economic priorities and institutional challenges on RE innovation and trade dynamics. Originality/value This study addresses a gap in the literature by examining the causal linkages between technological innovation and trade in the RE industry. It provides valuable insights into the differing roles of innovation in trade across economic contexts, emphasizing the need for tailored policy interventions in developing countries to enhance RE adoption and achieve sustainability goals.