Environmental pressure in supply chains: pass-through effects on R&D and innovation

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Speaker: Hongyu Nian, postdoctoral researcher, Shanghai Jiao Tong University

This paper investigates the pass-through of environmental compliance costs along supply chains. We compile a firm-level dataset linking regulated firms in pollution-intensive industries with their top 5 clients and suppliers. We find that clients of regulated firms invest less in R&D, employ fewer skilled R&D staff and produce fewer innovations than clients of less regulated firms, while no comparable effects are observed for suppliers. The pass-through is stronger with larger trade volumes, greater cost pressure faced by clients and in markets where regulated firms hold greater market power or clients face intense competition. It also operates through supply-chain disruption, as reflected in reduced transaction values and relationship reconfiguration. Policy simulations suggest that green technology incentives for regulated firms and R&D subsidies for their clients can mitigate these adverse effects and raise social welfare by enhancing both innovation and environmental quality.

The weekly climaTRACES workshops, organised by Kamiar Mohaddes and Henning Zschietzschmann, are attended by a diverse group of people from economics, geography, politics, engineering, business, earth sciences, natural sciences and history, generating interdisciplinary discussion. One person leads the session, on either a paper they have written, a work in progress or just an idea they have and would like feedback on. This is also an opportunity for people to find out more about the team on what climaTRACES have been up to and what future events and research projects are being developed.

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No registration required. If you have any questions about this seminar, please email Henning Zschietzschmann.

You can also join the workshop virtually on Zoom.