Economics Letters 237 (2024) 111637

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Economics Letters
journal homepage: www.elsevier.com/locate/ecolet

Foreign ownership and green innovation☆

Trung K. Do
University of Economics, The University of Danang, Vietnam

A R T I C L E I N F O A B S T R A C T

JEL classifications: Foreign-owned firms typically have access to more resources and expertise, which can aid in modernizing and
G30 upgrading local technologies. Additionally, foreign investment has the potential to attract highly skilled workers,
O30 thereby facilitating an increase in green innovation in host countries.
Q55
Keywords:
Foreign ownership
Green innovation
Southeast Asian countries

1. Introduction
Green innovation refers to the development and implementation of
new products, processes, and technologies that have a lower impact on
the environment compared to their conventional counterparts.1 This
term encompasses a wide range of innovations that target various
environmental challenges such as reducing greenhouse gas emissions,
conserving natural resources, and minimizing waste. Prior studies on
green innovation have showed that factors such as government regula­
tions, technological advancements, and firm strategies have been iden­
tified as significant drivers of green innovation (De Marchi, 2012; Kim
et al., 2021; Zaman et al., 2021; Jing et al., 2022). However, barriers
such as lack of investment and limited access to funding have also been
identified as hindrances to the adoption of green innovations. In this
study, we investigate how foreign ownership impacts green innovation
with a focus on Southeast Asian countries.
Southeast Asia has been experiencing a significant growth in foreign
direct investment (FDI) in recent years. The total annual level of FDI
inflows has risen from around US$ 120 billion per year during
2013–2015 to an annual level of US$ 175 billion in both 2019 and 2021.
Fig. 1 shows the FDI inflows into ASEAN, which reached its highest level
ever in 2021 at US$ 175 billion, with an increase of 43.6%, making it
one of the largest recipients of FDI in the developing world. The rise was
underpinned by strong investment in manufacturing, the digital econ­
omy and infrastructure. For example, the largest greenfield project an­
nouncements in Malaysia were all in semiconductors – Risen Solar
Technology (China) for $10 billion, Intel (United States) for US$ 7
billion and AT&S (Austria) for US$ 2.1 billion.2 Vietnam has also been
one of the fastest-growing FDI destinations in the region, attracting in­
vestment in sectors such as manufacturing and technology. The Thermal
Power Plant Factory (Japan), with a total investment capital of US$ 1.31
billion, aims to create a sustainable electricity supply for the regional
and national power system.3 Southeast Asian countries are offering
attractive investment opportunities for multinational corporations due
to their growing economies and large pool of talented workers. At the
same time, a more active international role of institutional money
managers has taken cross-border investment to record levels, repre­
senting an internationalization of the shareholder base of corporations
worldwide.4
In recent years, the world has seen an increased focus on environ­
mental sustainability and the need for companies to adopt more envi­
ronmentally friendly practices and products. Green innovation, the

☆
I am indebted to the Editor (Max Croce) and an anonymous referee for their helpful comments and suggestions. This work was supported by The University of
Danang, University of Economics, code number of Project: B2023-DN04-12-TT.
E-mail address: trung.dk@due.edu.vn.
1
In this study, our main focus is solely on green technology innovation.
2
See UNCTAD’s World Investment Report 2022. Available at https://unctad.org/publication/world-investment-report-2022
3
See Report on foreign direct investment in 2021, Ministry of planning and investment, Vietnam. Available at https://www.mpi.gov.vn/en/Pages/tinbai.aspx?
idTin=52660
4
Institutional investors are a large and growing actor in global financial markets, with nearly $100 trillion of assets under management in OECD countries alone in
2015, according to World Bank.

https://doi.org/10.1016/j.econlet.2024.111637
Received 3 February 2023; Received in revised form 29 February 2024; Accepted 4 March 2024
Available online 5 March 2024
0165-1765/© 2024 Elsevier B.V. All rights reserved.
T.K. Do
Fig. 1. FDI flows to sub-regions around the world, 2020–2021 (Billions of dollars).
Source: Adapted by authors using data from UNCTAD (www.unctad.org/fdistatistics).
development of new and improved technologies that are environmen­
tally sustainable, has become a critical component of this shift towards
sustainability. There is a growing body of research that suggests that
foreign ownership can play a key role in promoting green innovation
(Guadalupe et al., 2012; Bena et al., 2017; Luong et al., 2017; Kong et al.,
2020). One of the primary ways in which foreign ownership drives green
innovation is through the transfer of advanced technology and man­
agement skills, which can improve the competitiveness and sustain­
ability of local firms. Foreign owners often bring with them expertise
and technology that can be used to develop new, more environmentally
friendly products and processes. This can help companies to stay ahead
of their competitors and meet the growing demand for sustainable
products.
Another way in which foreign ownership can drive green innovation
is by attracting highly skilled labor. Foreign owners create an appealing
work environment that draws in talented workers and helps build a
strong and productive workforce. Finally, green innovation often re­
quires significant investments, and foreign owners can provide the
financial support that companies need for research and development of
green technologies. This can be particularly important for small com­
panies, especially those in Southeast Asian countries that may not have
the resources to invest in research and development on their own.
However, since the percentage of foreign ownership in emerging
markets is usually low partly due to the prevalent ‘‘home-bias’’, it is not
clear whether foreign investors seeking investing opportunities can
effectively play the monitoring role and increase innovation activities of
local firms (Kang and Stulz, 1997; Dahlquist et al., 2003; Do et al.,
2020). In addition, foreign owners may prioritize their home country’s
environmental regulations over those of the host country. This can lead
to a decrease in the level of green innovation in the host country, as
companies may be more likely to focus on meeting the regulations of
their home country rather than those of the host country. There is a risk
that foreign ownership could lead to the exploitation of local resources
and the degradation of the environment in the host country (Earnhart
and Lizal, 2006).
Using the Enterprise Survey database of six Southeast Asian coun­
tries from 2009 to 2016 and the country-level green innovation from the
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Economics Letters 237 (2024) 111637
OECD Statistics, we find that foreign ownership is positively associated
with green innovation. This finding is further confirmed by using an
instrumental variable approach. Additional analyses reveal that the
positive effect of foreign ownership on green innovation is more pro­
nounced for firms using technology licensed from a foreign-owned
company. Furthermore, we find that foreign owners tend to attract a
higher caliber of workers, which is advantageous for promoting green
innovation.
Our study has two principal contributions. Firstly, prior studies
examined the impact of foreign ownership on innovation (Bena et al.,
2017; Luong et al., 2017; Xu et al., 2022), while our paper focuses on
green innovation. Green innovation differs from general innovation by
emphasizing sustainable development and the reduction of environ­
mental burdens (Rennings, 2000). Three distinctive features of green
innovation have been identified, including the presence of positive
spillovers during both innovation and diffusion phases, the significance
of the regulatory framework as a critical factor, and the rising impor­
tance of social and institutional innovation. The last aspect aligns with
the notion that green innovation may extend beyond general innovation
and encompass broader social arrangements that prompt trans­
formations in prevailing social norms and institutional structures
(OECD, 2009). Second, our findings have particular relevance to inno­
vation strategy and policy, particularly in the context of transition
countries that are in the process of developing capabilities for green
innovation. By exporting more technology and recruiting more skilled
labor, we emphasize the importance of foreign ownership and its rein­
forcing impact on environmentally responsible actions.
The remainder of this paper is organized as follows. In Section 2, we
introduce the data, samples, and methods used. We examine the rela­
tionship between foreign ownership and green innovation in Section 3.
Section 4 concludes the paper.
2. Data, sample and research design
Our firm-level variables are from the World Bank Enterprise Survey
T.K. Do Economics Letters 237 (2024) 111637

Table 1 Technological innovation is measured using patent counts. Besides

Sample distribution and descriptive statistics Panel A presents the number of being readily available, patents present the advantage of being a good
firm-year observations, and the means of foreign ownership (Foreign), indicator of innovative activity and tend to be highly correlated with a
environmental-related technology (Env_Tech), climate change mitigation tech­ large number of alternative measures of innovation (Acs and Audretsch,
nology (CCM_Tech), and climate change adaption technology (CCA_Tech). Panel 1989; Acs et al., 2002). We extract patent data for six Southeast Asian
B presents the mean, standard deviation, 1st quartile, median, and 3rd quartile
countries from the OECD Statistics, over the 2009–2016 period. We use
values of firm- and country-level variables. The sample consists of 9431 firm-
the number of patents in environment-related technologies and climate
year observations across six Southeast Asian economies from 2009 to 2016.
change mitigation technologies to measure green innovation. Fig. 2
Panel A. Sample distribution
provides an overview of OECD country-level environment-related and
No. of obs. Foreign Env_Tech CCM_Tech
climate change mitigation technology (green) patents in 2016. The
Indonesia 2558 5.203 8.921 7.907 world has witnessed a consistent increase in the number of patent reg­
Myanmar 595 3.980 0.330 0.330
istrations in Southeast Asian countries. Much of this upswing occurred in
Malaysia 967 6.701 31.670 27.170
Philippines 2363 19.653 11.719 9.977 Malaysia, where the number of patents increased by 17% from 31.7 to
Thailand 965 3.834 21.920 15.580 37.3 over the 2015–2016 period. Vietnamese patents grew from 12.3 to
Vietnam 1983 9.144 7.587 7.171 14.8 over the same period. Overall, the substantially greater green
Total 9431
technology growth throughout Southeast Asian economies could be
Panel B. Descriptive statistics rooted in the fact that these developing countries start with compara­
Mean Std.Dev 1st quartile Median 3rd quartile tively more foreign investments, which have promising potential for
Green innovation both green innovation and economic growth in the coming years.
Env_Tech 12.462 8.549 7.600 10.170 15.500
CCM_Tech 10.553 7.064 6.570 9.170 13.500
3. Empirical results
Diffusion 25.200 8.051 13 31 33
Co-Invention 73.213 150.479 4 6 23
Ownership 3.1. Baseline results
Foreign 9.588 26.989 0 0 0
Domestic 85.845 31.672 100 100 100 Our baseline model is the following:
Firm characteristics
SIZE 19.495 3.873 16.649 19.395 22.313 Green Innovationj,t = β0 + β1 Foreign i,j,t + γXi,j,t + uj,t ; (1)
PPE 9.738 9.715 0.000 12.206 18.854
Locality_size 2.058 1.164 1 2 3
where sub-indices i, j and t refer to the firm, country and year, respec­
Competitor 1.073 1.169 0 1 2
Manager_exp 15.823 10.607 8 15 21 tively. The dependent variable Green Innovation is measured by the
Country characteristics number of inventions of environmental-related technology (Env_Tech)
GDPG 5.823 1.102 5.092 6.224 6.423 and climate change mitigation technology (CCM_Tech). Foreign is
Inflation 3.828 2.969 0.674 3.790 6.363 defined as the percentage of shareholdings held by foreign individuals
and institutions. We expect the coefficient β1 to be positive if an increase
over 2009–2016.5 The Survey provides detailed information on a pooled in foreign ownership of firms leads to an increase in green innovation. X
cross-sectional sample of 10,241 firms in nine Southeast Asian countries. is vector of control variables discussed in Section 2.
After merging with the country-level green innovation data which is Table 2 presents the results. We find that foreign ownership
obtained from OECD Statistics, our sample is reduced to six countries (Foreign), on average, is significantly and positively associated with
with 9431 firm-year observations. We conduct most of our analyses on green innovation measures. In columns (1) and (2), a one-standard-
this sample. Table 1, Panel A provides a list of these countries, the deviation increase in total foreign ownership is associated with an in­
number of observations in each country and the value of our foreign crease of 8.2 percentage points in Env_Tech and 10.2 percentage points
ownership as well as green innovation measures. In Panel B, we report in CCM_Tech. In the last two columns, we use environmental-related
the summary statistics for all variables used in the analysis. technology diffusion and co-invention as alternative measures of green
Our key interest variable, Foreign, is calculated as the percentage of innovation. Our results consistently show a positive impact of foreign
foreign ownership in a firm. As shown in Table 1, the percentage of ownership on these alternatives. Overall, the findings in Table 2 are in
foreign ownership ranges from 0 to 100%, with a mean of 9.58% and a line with the positive effect of foreign ownership, which suggests that
standard deviation of 26.98%. Across our sample countries, Thailand foreign investors typically plays a key role in governance since they are
and Myanmar have the lowest average foreign ownership (3.8% and more likely to be professional investors with specialized expertise in
3.9%), while the Philippines has the highest shares of foreign ownership evaluating firms’ financial performance and management quality.
(19.6%). The percentage of domestic ownership (Domestic) also exhibits Foreign owners bring with them expertise and technology that can be
great variations, with a mean of 85.8% and a standard deviation of used to develop new, more environmentally friendly products and
31.6%. processes.
The Enterprise Survey also provides information on other firm at­ In Table 3, we include institutional quality as a control variable in
tributes. Whenever feasible, we condition our analyses on the following Eq. (1) and conduct the analysis again.6 Over the last decade, countries
firm-specific traits: domestic ownership defined as the percentage of across the globe have adopted and implemented regulations to promote
shareholdings held by domestic individuals and institutions; firm size the production of environmentally friendly products and processes.
calculated by the natural logarithm of annual sales; PPE defined as the Thus, institutional quality might be an important aspect of shaping
natural logarithm of property, plant, and equipment; city size of a firm’s green innovation. We measure institutional quality using government
location; competitors’ practices; and manager experience captured by effectiveness and control of corruption (Kaufmann et al., 2011); and
the tenure of a firm’s executives. We further include in our regression environmental regulatory regimes index (Esty and Porter, 2005). A
models two country-level control variables: the annual GDP growth (i.e., higher value of these measures indicates better institutional quality. We
GDPG) and the growth in consumer price index (i.e., Inflation). generally find that our baseline results still hold by additionally con­
trolling for institutional quality, thereby confirming the important role

5
Several previous studies in finance have made use of this dataset, such as An
6
(2020) and Xu et al. (2022). We thank an anonymous reviewer for bringing this issue to our attention.

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T.K. Do Economics Letters 237 (2024) 111637

Fig. 2. Number of green patents in 2016.

Source: Adapted by authors using data from OECD Statistics.

Table 2
Foreign ownership and green innovation This table reports the baseline OLS regression results for the impact of foreign ownership on green innovation. The dependent
variable is environmental-related technology (Env_Tech), climate change mitigation technology (CCM_Tech), diffusion of environmental-related technology (Diffu­
sion), and co-invention of environmental-related technology (Co-Invention). Foreign (Domestic) is the percentage of shares held by all foreign (domestic) investors.
Firm- and country-level variables, including Size, PPE, Locality_size, Competitor, Manager_exp, GDPG, and Inflation, are controlled in each regression. All variables are
defined in Appendix A. Standard errors are robust to heteroskedasticity and clustered by firms. ***, **, or * next to the coefficients indicates significance at the 1%, 5%,
and 10% levels, respectively.
Dep. Var. = Env_Tech CCM_Tech Diffusion Co-Invention
[1] [2] [3] [4]

Foreign 0.038*** 0.040*** 0.314* 0.045***

(0.006) (0.005) (0.185) (0.009)
Domestic 0.027*** 0.033*** − 0.146 0.013
(0.006) (0.005) (0.197) (0.008)
Size − 0.645*** − 0.497*** − 6.275*** − 1.383***
(0.019) (0.018) (0.427) (0.035)
PPE 0.016*** 0.011** 0.788*** 0.007
(0.006) (0.005) (0.162) (0.011)
Locality_size 1.245*** 0.910*** − 20.974*** − 2.950***
(0.053) (0.049) (1.537) (0.112)
Competitor 0.675*** 0.709*** − 1.184 0.501***
(0.049) (0.044) (1.332) (0.077)
Manager_exp − 0.034*** − 0.040*** − 0.042 − 0.032***
(0.006) (0.005) (0.158) (0.006)
GDPG − 2.941*** − 1.813*** 44.896*** 3.245***
(0.045) (0.044) (1.333) (0.079)
Inflation − 1.098*** − 0.916*** − 18.925*** − 5.460***
(0.017) (0.016) (0.543) (0.080)
Number of observation 9431 9431 7593 4668
R-squared 0.568 0.477 0.255 0.708

of foreign ownership in enhancing green innovation. instrumental variable regression.

3.2. Instrumental variable approach
Reconsidering our research questions, one might ask: Do firms in
countries with a high level of green innovation attract more foreign
investors? The causal arrow, therefore, might run in both directions.
Establishing causal order by accounting for reverse causality is a key
challenge in many social scientific areas of research. To deal with the
endogeneity issue, we examine the robustness of our results by
International trade policies serve as effective tools for facilitating
foreign ownership. When a trade policy becomes appealing, it has the
potential to foster open markets, reduce trade barriers, establish legal
safeguards, and cultivate a stable investment environment, thereby
attracting substantial foreign investments. Consequently, an attractive
policy is anticipated to exhibit a positive correlation with foreign
ownership.
We utilize two instrumental variables in our analysis, namely Trade
Taxes (obtained from the World Bank database) and the quantity of Free

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T.K. Do Economics Letters 237 (2024) 111637

Table 3
Controlling for institutional quality This table presents the OLS regression results on the effect of foreign ownership on green innovation, while controlling for
institutional quality. We measure institutional quality using government effectiveness, control of corruption, and environmental regulatory regimes. The dependent
variables are Env_Tech and CCM_Tech. Foreign is the percentage of shares held by all foreign investors. Other controls are the same as Table 2. All variables are defined
in Appendix A. Standard errors are robust to heteroskedasticity and clustered by firms. ***, **, or * next to the coefficients indicates significance at the 1%, 5%, and
10% levels, respectively.
Dep. Var. = Env_Tech CCM_Tech Env_Tech CCM_Tech Env_Tech CCM_Tech
[1] [2] [3] [4] [5] [6]

Foreign 0.010** 0.014*** 0.009* 0.011** 0.022*** 0.025***

(0.004) (0.003) (0.005) (0.005) (0.004) (0.004)
Government effectiveness 0.154*** 0.137***
(0.001) (0.001)
Control of corruption 0.147*** 0.143***
(0.002) (0.001)
Environmental regulatory regime 0.233*** 0.212***
(0.001) (0.001)

Other controls YES YES YES YES YES YES

Number of observation 9431 9431 9431 9431 8836 8836
R-squared 0.871 0.829 0.726 0.695 0.865 0.822

Table 4
Instrumental variable approachThis table presents the results obtained from estimating the relationship between foreign ownership and green innovation using the
instrumental variable approach regression. Columns [1]-[3] focus on Trade Taxes, which are obtained from the World Bank and refer to the tariffs imposed on the value
of products involved in international trade, including import and export duties. To facilitate interpretation, we multiply the tax values by negative one. A higher value
indicates lower taxes on international trade. Columns [4]-[6] consider Free Trade Agreements (FTAs), defined as the cumulative number of FTAs by country during the
period from 2009 to 2016. The data regarding the number of FTAs is collected from the Asia Regional Integration Center (ARIC), Asian Development Bank. All other
variables are defined in Appendix A. Standard errors are robust to heteroskedasticity. ***, **, or * next to the coefficients indicates significance at the 1%, 5%, and 10%
levels, respectively.
Dep. Var. = Foreign Env_Tech CCM_Tech Foreign Env_Tech CCM_Tech
IV = Trade Taxes Free Trade Agreements (FTAs)
[1] [2] [3] [4] [5] [6]

IV 1.260*** 0.909***
(0.175) (0.028)
Foreign 0.257*** 0.163*** 0.719*** 0.582***
(0.014) (0.011) (0.011) (0.010)
Domestic 0.293*** 0.200*** 0.620*** 0.497***
(0.009) (0.007) (0.007) (0.007)
Size − 0.165*** − 0.130*** − 1.083*** − 0.920***
(0.033) (0.028) (0.024) (0.022)
PPE 0.021** 0.022*** 0.002 − 0.001
(0.008) (0.007) (0.008) (0.007)
Locality_size 2.397*** 1.958*** 0.788*** 0.458***
(0.088) (0.078) (0.074) (0.066)
Competitor 0.904*** 0.893*** 0.740*** 0.756***
(0.070) (0.061) (0.065) (0.057)
Manager_exp − 0.027*** − 0.030*** − 0.064*** − 0.068***
(0.007) (0.006) (0.008) (0.007)
GDPG − 2.374*** − 1.336*** − 4.567*** − 3.301***
(0.110) (0.089) (0.107) (0.093)
Inflation − 1.374*** − 0.949*** − 0.958*** − 0.774***
(0.044) (0.038) (0.028) (0.025)
Number of observation 7448 7448 7448 9431 9431 9431
Test for Weak Instrument 24.703 28.278
(F-statistic)

Trade Agreements (gathered from the Asia Regional Integration Center).
Table 4 present estimation results. The findings demonstrate a robust
and statistically significant correlation between our instrumental vari­
ables and foreign ownership, thereby lending strong support to our
assertion regarding the influence of trade policy.7 More importantly, the
relation of (instrumented) foreign ownership with green innovation is
positively significant at the 1% level across all models. To provide
additional support for our choice of instrument in the two-stage least
squares (2SLS) approach, we estimate the test to examine whether our
7
As for Trade Taxes, to facilitate interpretation, we multiply the tax values by
negative one since foreign investors are more likely to be attracted by lower
taxes. A higher value indicates lower taxes on international trade.
instrument is weak. F-statistics from the first staged regressions, with
values of 24.703 and 28.278, exceed the critical value of 10, indicating a
rejection of the null of a weak instrument. Overall, these results lend
strong support to the relevance criterion of our IVs.
3.3. The role of foreign technology
We contend that foreign investors bring with them expertise and
technology that can be used to develop new, more environmentally
friendly products and processes. So the impact of foreign ownership on
green innovation should be stronger for firms with using foreign tech­
nology. To test this conjecture, we estimate the following augmented
model:

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Table 5
The role of foreign technology. This table reports the OLS regression results for the impact of foreign ownership on green innovation conditional on foreign technology.
The dependent variables are Env_Tech and CCM_Tech. Foreign (domestic) is the percentage of shares held by all foreign (domestic) investors. Foreign_Tech is a dummy
variable equals one if a firm uses technology licensed from a foreign-owned company. Firm- and country-level variables, including Size, PPE, Locality_size, Competitor,
Manager_exp, GDPG, and Inflation, are controlled in each regression. All variables are defined in Appendix A. Standard errors are robust to heteroskedasticity and
clustered by firms. ***, **, or * next to the coefficients indicates significance at the 1%, 5%, and 10% levels, respectively.
Dep. Var. = Env_Tech CCM_Tech
[1] [2]

Foreign 0.031*** 0.034***

(0.006) (0.005)
Foreign × Foreign_Tech 0.012** 0.009**
(0.005) (0.004)
Foreign_Tech 1.565*** 1.470***
(0.199) (0.182)
Domestic 0.027*** 0.033***
(0.006) (0.005)
SIZE − 0.671*** − 0.521***
(0.019) (0.018)
PPE 0.010* 0.005
(0.006) (0.005)
Locality_size 1.207*** 0.874***
(0.054) (0.049)
Competitor 0.655*** 0.690***
(0.049) (0.044)
Manager_exp − 0.034*** − 0.039***
(0.006) (0.005)
GDPG − 2.886*** − 1.762***
(0.045) (0.044)
Inflation − 1.093*** − 0.911***
(0.018) (0.016)
Number of observation 9431 9431
R-squared 0.573 0.483

Green Innovationj,t = β0 + β1 Foreign i,j,t + β2 Foreign i,j,t × Foreign Techi,j,t expertise, which can help modernize and upgrade the host country’s
production processes, ultimately increasing green innovation.
+ Foreign Techi,j,t + γXi,j,t + uj,t ;
(2)
3.4. The role of skilled labors
where Foreign Tech is a dummy variable equals one if a firm uses
technology licensed from a foreign-owned company.
In our last set of tests, we examine how the association between
Table 5 presents the results. The coefficients on the interaction terms
foreign ownership and green innovation can vary with level of skilled
Foreign × Foreign Tech are positive and statistically significant in all
labors. If foreign investors can create an attractive work environment
models, indicating that the positive effect of foreign ownership on green
that draws in talented workers and helps build a strong and productive
innovation is stronger for firms that use technology from foreign-owned
workforce, then a positive effect of foreign ownership on skilled labors
company. Thus, the findings provide strong support for our conjecture
should be observed, and the documented relationship between foreign
that foreign-owned firms often have access to greater resources and
ownership and green innovation should be more pronounced in cases

Table 6
The role of skilled labors This table reports the OLS regression results for the impact of foreign ownership on green innovation conditional on skilled labors. Researchers
variable is the natural logarithm of the country-level total number of researchers in R&D (per million people). ForeignSL refers to highly skilled foreign workers who
are drawn to a country’s business environment. Foreign (domestic) is the percentage of shares held by all foreign (domestic) investors. Columns [1] and [4] show the
results of the direct impacts of foreign ownership on skilled labor, measured by researchers in R&D and foreign skilled labor. Columns [2], [3], [5], and [6] report the
cross-sectional regressions. High Researchers and High Foreign_SL are dummy variables that are defined based on the sample median in a given year. Firm- and
country-level variables, including size, PPE, locality_size, competitor, manager_exp, GDPG, and inflation, are controlled in each regression. All variables are defined in
Appendix A. Standard errors are robust to heteroskedasticity and clustered by firms. ***, **, or * next to the coefficients indicates significance at the 1%, 5%, and 10%
levels, respectively.
Dep. Var. = Researchers CCM_Tech Env_Tech Foreign_SL Env_Tech CCM_Tech
[1] [2] [3] [4] [5] [6]

Foreign 0.004*** 0.008 0.010* 0.006*** 0.040*** 0.040***

(0.001) (0.006) (0.005) (0.001) (0.006) (0.006)
Foreign × High Researchers 0.030*** 0.023***
(0.004) (0.004)
High Researchers 7.315*** 7.820***
(0.167) (0.146)
Foreign × High Foreign_SL 0.019*** 0.018***
(0.006) (0.005)
High Foreign_SL 9.674*** 8.149***
(0.323) (0.295)

Controls YES YES YES YES YES YES

Number of observation 6518 6518 6518 6853 6853 6853
R-squared 0.585 0.645 0.602 0.562 0.631 0.554

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where the level of skilled labors is high.
Skilled labors are proxied by two different variables respectively:
Researchers in R&D (collected from World Bank) and Foreign_SL
(collected from IMD World Competitiveness). Table 6 presents the re­
sults, with columns (1) and (4) indicating the direct impact of foreign
ownership on skilled labors and the remaining columns presenting the
cross-sectional test results. In general, the results provide robust support
for our conjectures. Foreign investment has the potential to attract
highly skilled workers and facilitate an increase in green innovation in
host countries.
4. Conclusion
This paper aims at quantifying the impact of foreign ownership on
green innovation. Studies have shown that foreign ownership can bring
a number of benefits to host countries, such as increased investment,
technology transfer, and job creation. For example, foreign-owned firms
often have access to greater resources and expertise, which can help to
modernize and upgrade the host country’s technologies. Additionally,
foreign investors can attract more talented workers by offering a
combination of attractive compensation packages and a positive work­
ing environment. Indeed, in this study, we find foreign investors are
more likely to engage in collaborative relationships with local partners
by providing local firms with technology from the foreign-owned com­
pany. They also hire highly skilled labor to work in research and
development. In these situations, foreign ownership acts as a catalyst for
green innovation, promoting the development of new, more sustainable
products and processes that benefit both the company and the
environment.
In conclusion, foreign ownership can play an important role in the
development of host countries. However, the relationship between these
two factors is complex and may be influenced by a variety of other
factors, including government policies and regulations, the level of
technological sophistication in host countries, and the availability of
resources. Further research is needed to gain a deeper understanding of
these relationships and to identify ways to promote green innovation.
Data availability
Data will be made available on request.

Appendix A. Variable definition

Variable Definition Source

Env_Tech The number of inventions of environmental-related technology developed by country’s inventors. OECD Statistics
CCM_Tech The number of inventions of climate change mitigation technology developed by country’s inventors. As above
Diffusion The number of inventions (environmental-related technology) that seek patent protection through national, regional or As above
international routes in a given jurisdiction.
Co-Invention The number of co-inventions (environmental-related technology) developed jointly by at least two inventors. As above
Foreign Foreign ownership, defined as the percentage of shareholdings held by individuals and institutions located in a country different Enterprise Surveys
from the firm’s location.
Domestic Domestic ownership, defined as the percentage of shareholdings held by individuals and institutions located in the same country as As above
the firm’s location.
SIZE Natural logarithm of firm sales. As above
PPE Natural logarithm of property, plant, and equipment. As above
Locality_size Size of locality equals 1 if a firm is located in a city with a population of over 1 million; 2 if the population is between 250,000 and 1 As above
million; 3 if the population is between 50,000 and 250,000; and 4 if the population is less than 50,000.
Competitor Competitors’ practices equal 0 if there is no obstacle in the product market; 1 if there is a minor obstacle; 2 if there is a moderate As above
obstacle; 3 if there is a major obstacle; and 4 if there is a very severe obstacle.
Manager_exp The number of years that a firm’s top executives have worked in the firm’s sector. As above
Foreign_Tech A dummy variable equals one if a firm uses technology licensed from a foreign-owned company. As above
Foreign Skilled Foreign highly-skilled personnel are attracted to a country’s business environment. IMD World
Labors Competitiveness
Researchers The natural logarithm of the total number of researchers in R&D (per million people). World Bank
GDPG Annual GDP growth. As above
Inflation Growth in consumer price index. As above

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