Green innovation for competitiveness: Impact on GDP growth in the European Union

Banelienė, Rūta; Strazdas, Rolandas; González-Tejero, Cristina Blanco; Gavrila Gavrila, Sorin Article Green innovation for competitiveness: Impact on GDP growth in the European Union Contemporary Economics Provided in Cooperation with: VIZJA University, Warsaw Suggested Citation: Banelienė, Rūta; Strazdas, Rolandas; González-Tejero, Cristina Blanco; Gavrila Gavrila, Sorin (2023) : Green innovation for competitiveness: Impact on GDP growth in the European Union, Contemporary Economics, ISSN 2300-8814, University of Economics and Human Sciences in Warsaw, Warsaw, Vol. 17, Iss. 1, pp. 92-108, https://doi.org/10.5709/ce.1897-9254.501 This Version is available at: https://hdl.handle.net/10419/297623 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ www.ce.vizja.pl 92 This work is licensed under a Creative Commons Attribution 4.0 International License. Since the start of the Industrial Revolution, the global climate has changed dramatically. Concentrations of greenhouse gases (GHGs) in the atmosphere have increased sharply, followed by an increase in global average temperatures. However, business activities related to environmental protection are mostly focused on the implementation of legal rules instead of voluntary initiatives such as green innovation due to doubts about costs and profit. The goal of this research is to identify the impact of green innovation on economic growth in an innovative environment and digitalization conditions by using sophisticated indexes and regression analysis. The results show that green innovations have a positive impact on economic growth in the European Union (EU). However, the impact of digitalization on economic growth is still under discussion and depends on qualitative aspects of coverage and how they are reflected in digitalization indicators. It is important to emphasize that the data of this empirical study only cover EU countries that are subject to EU regulation and have similar trends in the development and diffusion of green innovations. Non-EU countries may have different approaches and policies influencing the maturity and diffusion of green innovations. The results of this research provide a scientific basis for strategic planning at the national and business levels, encouraging a focus on the development of green innovation not only as a means of reducing the impact of climate change but also as a strategic direction for increasing competitiveness and economic growth. 1. Introduction1. Introduction The excessive usage of scarce resources and the lack of attention from humans throughout the centuries have peaked, resulting in changes to the global climate. In recent years, the discussion and actions regarding climate change have been bolstered by scientists and experts, who have begun to widely speak about the need for emergency actions supported by the societies of many developed countries. Hence, the right time to shift to a green economy is imminent. At the 26th Annual Conference of the Parties (COP26) to the United Nations (UN) Framework Convention on Climate Change (UNFCCC), governments had difficulty negotiating a final agreement. Although a compromise was found, these results do not meet the expectations of the COP for a clear and unambiguous response to limit global warming to 1.5 °C (United Nations, 2021). Looking to European Union (EU) strategies, which have declared a focus on environmental protection throughout the decades, it should be observed that the EU goal for greenhouse gas (GHG) emissions set in the Europe 2020 strategy was achieved in 2014 and has since remained below the target level (European Commission, 2021d). This fact indicates that the EU has an appropriate attitude toGreen Innovation for Competitiveness: Impact on GDP Growth in the European Union ABSTRACT A10, C30, E17, F63, O30, O40. KEY WORDS: JEL Classification: green innovation, digitalization, GDP growth, European Union. 1 Vilnius Gediminas Technical University, Vilnius, Lithuania 2 Economics and Business Management Department, University of Alcalá, Madrid, Spain Correspondence concerning this article should be addressed to: Rūta Banelienė, Vilnius Gediminas Technical University, J. Basanavičiaus str. 28, 03224 Vilnius, Lithuania. E-mail: [email protected] Rūta Banelienė1 and Rolandas Strazdas1 Guest editors: Cristina Blanco González-Tejero2 and Sorin Gavrila2 Primary submission: 17.08.2022 | Final acceptance: 20.01.2023 93 Rūta Banelienė, Rolandas Strazdas 10.5709/ce.1897-9254.501DOI: CONTEMPORARY ECONOMICS Vol. 17 Issue 1 92-1082023 ward environmental protection and has demonstrated this attitude in action. However, only 14 member states of the Organisation for Economic Co-operation and Development (OECD), including 9 out of 27 EU countries, namely, Sweden, Portugal, the Netherlands, Luxemburg, Italy, Ireland, France, Denmark and Austria, are participating in the green budgeting initiative of the OECD (OECD, 2021). Staying focused on environmental issues such as climate change, energy, water, biodiversity, land use, chemicals, toxic and heavy metals, air pollution, waste management, ozone layer depletion, oceans and fisheries, and deforestation is not easy for countries and companies that play by the rules but compete globally. For example, the EU set a green line in procurement rules with a special emphasis on environmental protection. However, the procurement rules vary significantly among regions and countries, especially regarding their economic development level, and such rules still create a space for pollution and irresponsible attitudes toward scarce resources. Unfortunately, business activities related to environmental protection are mostly focused on the implementation of legal rules instead of voluntary initiatives such as green innovation due to doubts about costs and profit. Nevertheless, smart companies are seizing competitive advantage through the strategic management of environmental challenges (Esty & Winston, 2006), and the green economy has become a competitive advantage for global players. Therefore, recent studies in the field of the green economy emphasize the important role of government policy and actions (Khan et al., 2021), including qualitative research (Trittin-Ulbrich & Böckel, 2022) and the relationship between green innovation and firm profitability from the taxation perspective (Delbono & Lambertini, 2022). Additionally, it has been proven that a green market orientation plays an important role in the green innovation development and green performance of companies (Wang, 2020). Many studies have evaluated the impact of green innovation through intellectual capital. Green innovation based on green intellectual capital – green human capital, green relational capital and green structural capital – has a positive impact on green performance and economic performance (Wang & Juo, 2021). Similar studies support the role of green intellectual capital and its positive impact on environmental performance via the mediating role of green innovation (Asiaei et al., 2022; Úbeda-García et al., 2022). It has been found that green innovation based on the proportion of green patent applications can significantly increase company value (Hao et al., 2022). Additionally, green innovation measured by patent applications related to environment-related technologies has emerged as an important tool in combatting environmental degradation (Koseoglu et al., 2022). Martínez-Ros and Kunapatarawong (2022) analyzed green innovation development under knowledge sources (internal and external) and found that when companies are growing in size, they shift their focus from internal to external knowledge, developing green innovation (Martínez-Ros & Kunapatarawong, 2022). Wang et al. (2022), based on a survey of 149 large, 121 medium and 81 small companies, concluded that green knowledge management is a significant positive predictor of corporate sustainable development (Wang et al., 2022). The positive moderating effect of environmental innovation on the relationship between environmental performance and firm financial performance was proven by Wedari, Moradi-Motlagh and Jubb (2022). Zheng & Iatridis analyzed the findings of research, dividing them between manufacturing and services benefiting from eco-innovation. They found that manufacturing companies benefit the most from their economic, environmental and operational performance, while service companies benefit from eco-innovation in terms of social performance (Zheng & Iatridis, 2022). Moreover, it was verified that green growth based on sustainable technology transfer and sustainable innovation has a positive impact on GDP growth (Fernandes et al., 2021). There are many other studies on the impact of green (product or process) innovation on company performance. Achi et al. (2022) found that green process innovation mediates the positive relationship between corporate social responsibility (CSR) and micro, small, and medium-sized enterprise (MSME) performance. Albort-Morant et al. (2018) tested a hypothesis on the basis of 112 Spanish automotive component manufacturing companies and concluded that there is a positive and significant mediating effect of relationship learning on the knowledge base–green innovation performance relationship. Arranz et al. (2020) found that www.ce.vizja.pl 94 Green Innovation for Competitiveness: Impact on GDP Growth in the European Union This work is licensed under a Creative Commons Attribution 4.0 International License. eco-innovation and innovation are interrelated and complementary in nature, which facilitates the development of future eco-innovation. Based on a dataset of 195 small and medium-sized enterprises (SMEs) in China, Chen and Liu (2020) focused on customer participation seeking to enhance green product innovation by facilitating the recognition and exploitation of opportunities. Iranmanesh et al. (2017) studied the effect of green product and process innovation on job satisfaction and concluded that they have a positive direct effect on job intensity and a negative indirect effect on job satisfaction through job intensity. Using data from 209 listed companies that belong to heavily polluting manufacturing industries, Xie et al. (2019) found that green process innovation has a positive impact on green product innovation and that both green process innovation and green product innovation can improve a company’ financial performance. Investments in research and development (R&D) and the impact of eco-innovation on GDP growth have received less attention from academia compared to studies at the company level. Banelienė (2021) researched OECD countries and found that the multiplier effect of business-financed R&D investment and its impact on economic growth depend on the economic development level. Additionally, Banelienė (2022) analyzed how sustainable economic growth could be maintained in the long run while considering three criteria, including R&D investment, gross value added per employee and country size by population, and which factors could have the highest impacts on economic growth in the COVID-19 recovery process according to supply and demand. Estimation outputs show the stronger effect of the supply side on economic growth, the higher role of human capital in small EU countries where R&D investment exceeds 3% of GDP, and the critical effect of exports on GDP growth in the large EU countries with the lowest R&D investment (Banelienė, 2022). The research by Khan et al. (2021) was based on Northern European countries – Denmark, Norway, and Sweden – and focused on the government’s role in the transition to a green economy, analyzing strategic policy documents. Mačiulytė-Šniukienė and Sekhniashvili (2021) focused their research on EU countries and found that eco-innovation development has a positive impact on economic growth and environmental performance. Martínez-Ros and Kunapatarawong (2019) analyzed 384 articles in the Scopus database and observed that in academia, there has been a clear increase in interest in eco-innovation. However, studies on green innovation in the context of the green economy, digitalization and their impact on economic growth are lacking, and this topic is still under discussion and requires much more in-depth research. Therefore, the research question of this study is as follows: what is the relationship between green innovation, digitalization and the green economy, and what influence do these factors have on national economic growth? From our perspective, green innovation can have a positive impact not only on climate change but also on national economic growth. This impact may be due to the maturity of green technology, for example, investment in green energy (solar and wind). In the early stage of technological development, the cost‒benefit value is negative or close to negative. As technology advances, investing in green energy can have a positive economic impact on a country's economy. A similar trend can be observed with electric cars and other green innovations. This means that investment in green innovation may be profitable. Existing research and literature analysis show that this topic has not been fully explored, and it is still unclear how investment in green innovation development can affect economic growth, especially considering the technological maturity of green innovation. Given the importance of this topic to society, the impact of green innovation on economic growth can be continuously studied. It is very important to understand when the technological maturity of green innovation reaches a level where a positive economic effect can be clearly identified. The research presented in this article contributes to a deeper understanding of this topic. Digitalization may have a similar effect on the economy of a country, but it is not the key variable of this study. Digitalization is chosen to reduce the risk of reverse causality with respect to green innovation. This means that if growth in green innovation is driven by a high GDP per capita, a similar pattern may also occur with regard to digitalization. This paper covers a theoretical approach and an empirical background that observe the current situation 95 Rūta Banelienė, Rolandas Strazdas 10.5709/ce.1897-9254.501DOI: CONTEMPORARY ECONOMICS Vol. 17 Issue 1 92-1082023 and current needs to ground the added value created by green innovation to enhance the will of world leaders to support the necessary actions in the field of climate change without damaging the economies of their countries. Additionally, this section addresses the general view regarding the measurement of the innovativeness of countries from the green innovation perspective with a focus on quantitative and qualitative aspects. The methodology section is focused on presenting the model constraints, describing the model idea, the variables, and the hypotheses proposed. For modeling, sophisticated data on innovations, green incentives, and digitalization in EU countries are used, and the least squares method is applied for estimation. The results show the estimation outputs and prove that green innovation has a positive impact on economic growth in EU countries. The summary of this research and its insights are provided in the discussion and conclusion sections, with a clear focus on the added value of green innovation in the economies of the countries chosen for this research. 2. Theoretical Approach and 2. Theoretical Approach and Empirical BackgroundEmpirical Background Since the beginning of the Industrial Revolution, the global climate has changed dramatically. Concentrations of greenhouse gases (GHGs) in the atmosphere have risen sharply, followed by a rise in global average temperatures. These high concentrations of CO2 and other GHGs are mainly due to emissions from developed countries. Modern developed economies have historically contributed significantly more to the problem of global warming due to two centuries of industrial development (Cirman et al., 2009; Mulder et al., 2021; United Nations, 2013). To avoid the negative potential outcomes of global warming, in 2015, countries adopted the Paris Agreement on Climate Change. The Paris Agreement, adopted by 196 parties at COP26, is an agreement for establishing a new climate change regime after the Kyoto Protocol, a legally binding international treaty on climate change. The goal of the Paris Agreement was to limit global warming to well below 2 °C, preferably 1.5 °C, compared to preindustrial levels (Allan et al., 2021; United Nations Environment Programme, 2021). To achieve this long-term temperature goal, countries aimed to reach a global peak of GHG emissions as soon as possible to achieve a climate-neutral world by the middle of this century. The sixth edition of the United Nations Environmental Programme (UNEP) Adaptation Gap Report (2021) presented at the Glasgow Climate Conference in 2021 finds that climate impacts continue to outpace attempts to change the situation. According to the report, 2021 was the year when the effects of climate on developed and developing countries hit countries particularly hard. The Intergovernmental Panel on Climate Change (IPCC) has warned that in the best cases, there is a 50% chance of limiting global warming to a 1.5 °C rise this century. Funding to combat global warming is a key issue in this discussion. The gap between the actual and necessary adaptation costs is widening. The estimated adaptation costs could reach US$280-500 billion per year by 2050 for developing countries alone (United Nations Environment Programme, 2021). The potential negative consequences of these efforts for the economic development of countries are alarming. There are concerns that countries' commitments to reduce CO2 emissions could reduce a country's competitiveness, increase unemployment, and increase the prices of products, especially food. It is thought that the funds to combat global warming would be more effectively used to tackle social problems and boost economic growth (Hovi et al., 2012). For example, the United States withdrew from the Paris Agreement in 2017 (Rajamani & Brunnée, 2017). The exit of the United States, which is the second largest GHG emitter, from the Paris Agreement would seriously challenge the achievement of the goals of the agreement. For the same reasons, many countries are reluctant to make higher commitments to reduce GHG emissions. As the Paris Agreement obligates developed countries to identify a quantified target for reducing GHG emissions, called nationally determined contributions (NDCs), for themselves, they choose the target and its baseline (Allan et al., 2021). According to Rowan (2019), roughly half of the NDCs of the target to reduce emissions are below “business as usual”, and a quarter include a reduction target below a reference year (Rowan, 2019). www.ce.vizja.pl 96 Green Innovation for Competitiveness: Impact on GDP Growth in the European Union This work is licensed under a Creative Commons Attribution 4.0 International License. All of these facts lead to the conclusion that there is a prevailing opinion, especially among politicians, that measures to reduce GHG emissions are detrimental to national economies. Such an approach discourages investment in measures and technologies to reduce GHG emissions and hampers the fight against global warming. Despite this approach, financial institutions are more optimistic about green investment. The United Nations Conference on Trade and Development (UNCTAD) (2021) estimates that the value of sustainability-themed investment products in global capital markets amounted to US$3.2 trillion in 2020, up more than 80% from 2019 (UNCTAD, 2021). These products include sustainable funds (more than US$1.7 trillion), green bonds (more than US$1 trillion), social bonds (US$212 billion), and mixed-sustainability bonds (US$218 billion). Sustainability-themed funds have continued their growth despite volatile markets in 2020 (UNCTAD, 2021). It is important to emphasize that sustainability-themed funds are those that, in addition to value criteria, assess the impact of investments on society and apply environmental, social, and corporate governance criteria. They can pursue sustainabilityrelated topics or explicitly aim to create measurable social impacts. An UNCTAD (2021) study shows that investment in eco-innovation, green technologies, and sustainable innovation can not only have a positive effect on combating global warming but also be profitable. The term “green innovation” should be clarified for further analysis. According to Díaz-García et al. (2015), there are four different terms used in the literature to describe innovations that have a reduced negative impact on the environment: “green”, “eco”, “environmental” and “sustainable”. These terms can be used interchangeably in macroeconomic research, but there are some differences that may be important to identify in disciplines such as microeconomics or product design. Fussler and James (1996) stated that eco-innovation is new product and process development that simultaneously focuses on creating value for customers and businesses and significantly decreasing environmental impacts. According to Chen et al. (2006), green innovation is defined as a hardware or software innovation related to green products or processes and Figure 1 Relationships Among Green Innovation, Eco-innovation, Environmental innovation, and Sustainable Innovation 97 Rūta Banelienė, Rolandas Strazdas 10.5709/ce.1897-9254.501DOI: CONTEMPORARY ECONOMICS Vol. 17 Issue 1 92-1082023 includes technological innovation in the fields of energy saving, pollution prevention, waste recycling, green product design, or corporate environmental management. Comparing the above definitions of eco-innovation and green innovation, it is clear that the objective of green innovation is not always to “significantly decrease environmental impacts”. According to Szekely and Strebel (2013), sustainable innovation can be described as creating something new that raises social, environmental, and economic performance. Such innovation covers changes in technologies, processes, operational practices, business models, thinking, and business systems (Szekely & Strebel, 2013). According to the above definition, sustainability is a key element of sustainable innovation, but not all green innovations can be sustainable, nor can all innovations have economic sustainability. Environmental innovation is more focused on reducing a company's environmental impacts and can be described as organizational implementations and changes with a clear focus on environmental protection, with implications for companies’ products, manufacturing processes and marketing and with different degrees of novelty. These innovations can be incremental or radical, where the main objective is to reduce the company's environmental impacts (Días Angelo et al., 2012). Environmental impacts can be described as actions taken by companies that focus on protecting and minimizing damage to the environment and that cover components such as climate change, natural resources, pollution and waste, and environmental opportunities (Lee & Suh, 2022). Based on the analysis of the above definitions, green innovation is a broader concept that includes eco-innovation, environmental innovation, and sustainable innovation (see Fig. 1). This is in line with the statement on the term “green innovation” in the Oslo Manual. The impact of business activities and products on the natural environment can also drive business innovation, for instance, when companies aim to reduce these impacts through green innovations (OECD/Eurostat, 2018). According to this statement, any business innovation aimed at reducing negative impact (significant or insignificant) on the natural environment can be described as a green innovation. The term “green innovation” is used deliberately in this study, as this term is more appropriate for macroeconomic research because green innovation is a broader concept that includes ecoinnovation, environmental innovation and, in part, sustainable innovation. Many authors have analyzed the impact of different factors on economic growth. Odoardi and Pagliari (2019) analyzed household wealth as a factor of economic growth. Kłopocka and Wilczyński (2021) analyzed the impact of credit supply on unemployment risk and household savings. Recent studies have analyzed how different crises, including the COVID-19 crisis, have impacted different economic indicators, including GDP growth (Sinković et al., 2022). However, the impact of investment in the development of green innovation on economic growth has not been fully explored. Some studies show that, in general, technological innovation can have a positive effect on economic growth. However, it may have a negative impact on a sustainable economy, as increased economic activity leads to increased carbon dioxide emissions due to increased productivity (Su et al., 2021). On the other hand, some green innovations, such as renewable energy consumption and energy use, may have positive and significant associations with sustainable economic development (Nguyen et al., 2022). Innovations related to financial development, industrialization, trade, and energy consumption have also been found to be factors that harm environmental quality (Khan et al., 2022). Green innovation, by definition, should have a positive impact on the quality of the environment, but at the same time, it can have a positive or negative impact on economic growth. This fact can be attributed to the different maturities and levels of diffusion of green innovations (Rogers, 1995). Green innovation in countries with high green innovation maturity and a high level of diffusion may show a positive effect on economic growth, while low green innovation maturity and a low level of diffusion may show a negative effect. All the macroeconomic studies noted above have the risk of reverse causality. Similar challenges arise when analyzing the impact of green innovation on economic growth. In theory, it is possible that wealthier countries (countries with a high GDP per capita) have more resources to develop green innovation. To www.ce.vizja.pl 98 Green Innovation for Competitiveness: Impact on GDP Growth in the European Union This work is licensed under a Creative Commons Attribution 4.0 International License. reduce the risk of reverse causality with respect to green innovation, digitalization is analyzed as a similar causal factor. This means that if growth in green innovation is driven by a high GDP per capita, a similar pattern may also occur with regard to digitalization. Examining the empirical background, the basic principle in the elaboration of eco-efficiency indicators is a determination of the ratio between the value of a product or service and its environmental impact by increasing the value of the product or service or decreasing its environmental impact (Albu, 2017). However, this state is based on the microlevel, not the macrolevel, where a much broader spectrum of factors is involved in building a green economy and where qualitative factors play an increasingly important role in the long run. OECD lessons from a peer-learning exercise in the field of the green economy stress the importance of the following factors: strong policy commitment and leadership, robust systems, processes and tools, capacity and continuous skill development, shared knowledge, learning and engagement, and well-supported country systems (OECD, 2019). The evaluation of these factors should be based more on qualitative factors but with a strong attitude toward evaluating progress and keeping it on track by monitoring quantitative indicators. Many innovativeness indicators have been used in recent decades. All of them have mostly been based on quantitative data with a focus on evaluating and comparing countries and regional and local economies worldwide. One such index at the global level is the global innovation index (GII), which consists of subindicators for seven fields—institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs, and creative outputs—and covers the ease of doing business subindicators. The GII is provided by the World Intellectual Property Organization (2021) for 132 economies. At the regional level, the EU observes countries’ innovativeness by using the European innovation index (EII), which is based on subindicators, such as framework conditions (human resources, attractive research systems, digitalization), investments (finance and support, firm investment, use of information technologies), innovation activities (innovators, linkages, intellectual assets), impacts (employment impacts, sales impacts, environmental sustainability), and other contextual structural indicators. The EII was calculated by the European Commission (2021b) and provided for all EU countries and ten more European economies. In the field of digitalization, Nesta (2019) proposed a new indicator, the European digital social innovation index (EDSII), which was carefully developed for 60 European cities, including 25 capital cities of EU countries. Additionally, it was based equally on quantitative and qualitative data. The EDSII has subindicators for the field of civil society, collaboration, skills, infrastructure, funding, and diversity and inclusion. A few indicators, such as digital inclusion (DI), are included in the EDSII on the basis of another regional index, the digital economy and society index (DESI), estimated by the European Commission (2021a) for EU countries. At the same time, the DESI was based on five subindicators: connectivity, human capital, the use of internet services, the integration of digital technology, and digital public services. The green economy or eco-economy at the EU level is represented by the eco-innovation index (EcoII) with subindicators such as eco-innovation inputs, activities and outputs, resource efficiency outcomes, and socioeconomic outcomes (European Commission, 2021c). It is a part of the EII. To summarize the indicators noted above, all of them take into account human capital, skills and creative activity, available infrastructure, and the attitude toward environmental sustainability. Additionally, they can help to answer the research question regarding the relationship between green innovation, the green economy and digitalization and what influence these factors have on national economic growth. 3. Methodology: Model and Data3. Methodology: Model and Data Taking into account innovativeness indicators and the main idea of this paper to evaluate and find a relationship among innovativeness, the green economy, and digitalization, three indicators were chosen for the model: the EII, the EcoII, and the newly developed EDSII, as well as its subindicators – DI, access to employees with software engineering/development skills, and individual giving (see Fig. 2). 99 Rūta Banelienė, Rolandas Strazdas 10.5709/ce.1897-9254.501DOI: CONTEMPORARY ECONOMICS Vol. 17 Issue 1 92-1082023 All three indexes are described in detail in the empirical background. However, the chosen subindicators of the EDSII need an additional explanation: Digital inclusion (DI) represents the score for the basic skills and usage subdimension of the human capital dimension of the DESI. The basic skills and usage subdimension capture information about whether the population is able to use the internet and uses it on a regular basis and whether the population possesses at least a basic level of digital skills in at least one of four digital competence domains: information, communication, content creation or problem solving. The components of the DI are as follows: the skills of internet users (at least basic digital skills, above basic digital skills, at least basic software skills) and advanced skills and development (information and communication technology (ICT) specialists, female ICT specialists, ICT graduates) (Nesta, 2019; European Commission, 2021a); Access to employees with software engineering/development skills: This subindicator is the number of users on the Stackoverflow (for programmers) forum in a city per active population [age 16-64]. It is included to represent the qualitative aspect of digitalization (Nesta, 2019); Individual giving: This subindicator is the score for donating money to charity. It is based on responses to the following survey question: "Did you donate money to charity in the last 12 months (yes/no)?". At the initial stage, this indicator was included in the model as a dummy variable (Nesta, 2019). The geographical coverage of this research is based on the EU area. Due to the limitations of the EDSII, only 25 out of 27 EU countries were included because the EDSII subindicators were calculated for the capital cities of 25 countries. The mathematical expression of the model is as follows: (1) where GDP/capita – GDP per capita in current prices (€, 2020), Eurostat data; EII – European innovation index for 2021, with data from the European Commission; EcoII – eco-innovation index for 2021 (as part of EII), with data from the European Commission; DI – digital inclusion; SWE – access to employees with software engineering/development skills; and IG – individual giving, with 2019 data from Nesta for the EDSII subindicators (see Equation 1, Appendix A). Figure 2 Structure of the Model www.ce.vizja.pl 106 Green Innovation for Competitiveness: Impact on GDP Growth in the European Union This work is licensed under a Creative Commons Attribution 4.0 International License. entrepreneurship for responsible digital innovation: The case of corporate digital responsibility. Creativity and innovation management, early view, 1–13. https://doi.org/ 10.1111/caim.12513 Úbeda-García, M., Marco-Lajara, B., Zaragoza-Sáez, P. C., Manresa-Marhuenda, E., & PovedaPareja, E. (2022). Green ambidexterity and environmental performance: The role of green human resources. Corporate social responsibility and environmental management, 29(1), 32–45. https://doi. org/10.1002/csr.2171 United Nations. (2021). COP26: The Glasgow climate pact. https://ukcop26.org/wp-content/ uploads/2021/11/COP26-Presidency-OutcomesThe-Climate-Pact.pdf United Nations. (2013). Innovation policy for green technologies: Guide for policymakers in the transition economies of Europe and Central Asia. United Nations. https://unece.org/fileadmin/DAM/ceci/ publications/GreenTechnology/IntroMod.I_ECE. CECI.20.pdf United Nations conference on trade and development (UNCTAD). (2021). World investment report. United Nations. https://unctad.org/system/files/ official-document/wir2021_en.pdf United Nations environment programme. (2021). Adaptation gap report 2021: The gathering storm – adapting to climate change in a post-pandemic world. Nairobi. https://www.unep.org/resources/ adaptation-gap-report-2021 Wang, C.H. (2020). An environmental perspective extends market orientation: Green innovation sustainability. Business strategy and the environment, 29(8), 3123–3134. https://doi. org/10.1002/ bse.2561 Wang, C. H., & Juo, W.-J. (2021). An environmental policy of green intellectual capital: Green innovation strategy for performance sustainability. Business strategy and the environment, 30(7), 3241– 3254. https://doi. org/10.1002/bse.2800 Wang, S., Abbas, J., Sial, M. S., Álvarez-Otero, S., & Cioca, L. I. (2022). Achieving green innovation and sustainable development goals through green knowledge management: moderating role of organizational green culture. Journal of innovation & knowledge, 7(4), 100272. Wedari, L. K., Moradi-Motlagh, A., & Jubb, C. (2022). The moderating effect of innovation on the relationship between environmental and financial performance: Evidence from high emitters in Australia. Business strategy and the environment, early view, 1–19. https://doi.org/10.1002/bse.3167 WIPO. (2021). Global innovation index 2021: Tracking innovation through the COVID-19 crisis. World intellectual property organization. https://doi. org/10.34667/tind.44315 Xie, X., Huo, J., & Zou, H. (2019). Green process innovation, green product innovation, and corporate financial performance: A content analysis method. Journal of business research, 101, 697–706. https://doi.org/10.1016/j.jbusres.2019.01.010 Zheng, L., & Iatridis, K. (2022). Friends or foes? A systematic literature review and meta-analysis of the relationship between eco-innovation and firm performance. Business strategy and the environment, 31(4), 1838–1855. https://doi.org/10.1002/ bse.2986 107 Rūta Banelienė, Rolandas Strazdas 10.5709/ce.1897-9254.501DOI: CONTEMPORARY ECONOMICS Vol. 17 Issue 1 92-1082023 Appendix A Table A.1 Data Used for Modeling Country GDP/capita 2020, in € (current prices)* European innovation index (EII) 2021** Eco innovation index (EcoII, sub index of EII) 2021** Individual giving (sub index of EDSII)*** Access to employees with software engineering/ development skills (sub index of EDSII)*** Digital inclusion (sub index of EDSII)*** GDP 2020% change on previous period (current prices, chain linked volumes)**** GDP 2021% change on previous period (current prices, chain linked volumes)**** Austria 42615 133.62 130 54 0.34 35.55 -6.70 4.80 Belgium 39156 143.52 85 45 0.13 34.14 -5.70 6.20 Bulgaria 8724 50.06 34 18 0.28 16.50 -4.40 4.20 Croatia 12144 78.22 72 25 0.26 27.33 -8.10 10.20 Cyprus 24266 106.48 56 42 0.10 29.05 -5.00 5.50 Czechia 20129 94.41 96 21 0.26 31.85 -5.50 3.50 Denmark 53672 147.51 146 56 0.36 40.85 -2.00 4.90 Estonia 20192 128.29 73 27 0.54 34.45 -3.00 8.30 Finland 42743 151.38 145 39 0.24 40.48 -2.20 3.00 France 34208 122.30 107 27 0.18 32.12 -7.80 6.80 Germany 40492 137.92 123 55 0.11 36.83 -3.70 2.60 Greece 15471 88.49 75 7 0.19 22.90 -9.00 8.30 Hungary 13985 76.42 54 22 0.24 27.25 -4.50 7.10 Italy 27725 108.08 112 35 0.03 23.09 -9.00 6.60 Latvia 15470 55.87 86 21 0.43 28.05 -3.80 4.50 Lithuania 17719 92.08 82 19 0.32 28.35 -0.10 5.00 Netherlands 45962 138.50 110 66 0.25 31.73 -3.90 4.90 Poland 13796 65.88 59 24 0.08 25.20 -2.20 5.90 Portugal 19434 90.26 100 20 0.04 25.63 -8.40 4.90 Ireland 75108 121.27 97 64 0.69 28.09 6.20 13.60 Romania 11287 35.09 57 20 0.14 15.92 -3.70 5.90 Slovakia 16871 70.98 62 31 0.13 31.15 -4.40 3.00 Slovenia 22386 100.49 94 35 0.24 28.76 -4.20 8.10 Spain 23703 95.99 104 35 0.08 30.36 -10.80 5.10 Sweden 46022 156.45 143 57 0.42 42.16 -2.20 5.10 *Calculated by authors based on Eurostat data, 2021a, 2021b. **Source: European and regional innovation scoreboards 2021. ***Source: Nesta, 2021. ****Source: Eurostat data, 2022. www.ce.vizja.pl 108 Green Innovation for Competitiveness: Impact on GDP Growth in the European Union This work is licensed under a Creative Commons Attribution 4.0 International License. Appendix B Figure B.1 Normality Test: The Basic Equation Figure B.2 Normality Test: The Equation with Independent Variables of GDP Growth