Determinants of innovation in energy intensive industry and implications for energy policy

•We analyze determinants on two innovations in energy intensive industry (EII).•The R&D personnel ratio is effective in product innovation in EII.•Both R&D intensity and R&D personnel are effective in process innovation in EII.•In less EII, R&D variables have positive effects on product and process innovations.•The Korean government should strongly support R&D to improve energy efficiency.

sThe Korean government adopted “green growth” in 2008 as an environmentally friendly growth strategy. The energy efficiency of Korea, however, is still relatively low due to the large portion of energy intensive industry (EII) in its manufacturing sector. To improve energy efficiency in Korea, from an EII perspective a new approach has to be taken because restructuring entire industries would take too much time and be too costly. This study aims to emphasize the importance of innovation and analyze the effects of R&D on product and process innovations in EII in Korea. The Probit model is adopted to estimate the effects of eight determinants in the Korea Innovation Survey 2008 data. The results of this study demonstrate that one of the most important determinants, the R&D personnel ratio, has a strong positive effect on both product and process innovation, while another determinant, R&D intensity, only has a strong and positive effect on process innovation in EII. Because of the resulting innovation, energy policies should be enacted to enhance energy efficiency. Thus, the Korean government should keep providing incentives for firms in EII to invest more financial and human resources in their R&D activities.