Who will win the green race? In search of environmental competitiveness and innovation

As the world considers greener forms of economic growth, countries and sectors are beginning to position themselves for the emerging green economy. This paper combines patent data with international trade and output data in order to investigate who the winners of this "green race" might be. The analysis covers 110 manufacturing sectors in eight countries (China, Germany, France, Italy, Japan, South Korea, UK and the US) using date for the period 2005-2007. We identify three success factors for green competitiveness at the sector level: the speed at which sectors convert to green products and processes (measured by green innovation), their ability to gain and maintain market share (measured by existing comparative advantages) and a favourable starting point (measured by current output). We find that the green race is likely to alter the present competitiveness landscape. Many incumbent country-sectors with strong comparative advantages today lag behind in terms of green conversion, suggesting that they could lose their competitive edge. Japan, and to a lesser extent Germany, appear best placed to benefit from the green economy, while other European countries (Italy in particular) could fall behind. However, the green economy is much broader than the few flagship sectors on which the debate tends to focus, and each country has its niches of green competitiveness.