Competitive advantage in the renewable energy industry: Evidence from a gravity model

Pioneering domestic environmental regulation may foster the creation of new eco-industries. These industries could benefit from a competitive advantage in the global market place. This article examines empirical evidence of the impact of domestic renewable energy policies on the export performance of renewable energy products (wind and solar PV). We use a gravity model of international trade with a balanced dataset of 49 (for wind) and 40 (for PV) countries covering the period 1995-2013. The stringency of renewable energy policies is proxied by installed capacities. Our econometric model shows evidence of competitive advantage positively correlated with domestic renewable energy policies, sustained in the wind industry but brief in the solar PV industry. We suggest that the reason for the dynamic difference lies in the underlying technologies involved in the two industries.