Abstract
•Foreign ownership positively impacts on subsidiaries’ green innovative capabilities.•MNE subsidiaries vis-à- vis domestic companies have green innovative advantage when they are in less developed but more innovative countries.•Green FDI is more effective when technologies are characterized by more taict knowledge, such as in wind when compared with Solar PV industry.•Cross-border acquisitions are more efficient at establishing green innovative capabilities than greenfield subsidiaries.•Countries with weaker green innovative capabilities can attract green FDI to enhance their contribution to the green transition.
Technologies to mitigate climate change may diffuse from lead markets to the rest of the world through several mechanisms and make important contributions to the global green transformation. In this paper, we explore the role played by multinational enterprises (MNEs) in transferring knowledge and innovative capabilities in green technologies to their global subsidiaries. We posit that the degree of green knowledge transfer and innovative capability development in subsidiaries depend on: (i) the host country characteristics, (ii) the specific technology in question, and (iii) the mode of entry. The empirical analysis combines data on foreign direct investments with patent analysis. The results suggest that being a subsidiary of a green MNE has a positive impact on the number and quality of green patents produced locally. This green innovative advantage vis-à-vis domestic companies is larger in less developed countries and in those that are less reliant on oil rents, in particular if they already possess higher levels of relevant domestic innovative capacity. Furthermore, firm and sectoral characteristics also matter. The analysis suggests that green FDIs are more effective when technologies are characterized by low tradability and tacit knowledge. Finally, cross-border acquisitions are more efficient at strengthening green innovative capabilities than subsidiaries established with greenfield investments.