Green knowledge production functions with latent group structures in the presence of human capital spillovers and fiscal policies

The paper analyses the green knowledge production function with human capital spillovers in the context of OECD countries by using a latent group structure methodology, to address cross-country heterogeneity, in order to enrich evidence-based policymaking. In fact, the number of groups and the group membership are often unknown features in a dataset. These ‘unknowns’ are determined using a penalized regression technique, in the presence of cross-sectional dependence and nonstationarity. Substantial heterogeneity is unveiled and classified into distinctive groups with significant macroeconomic features. Modelling the green knowledge production function with latent-group structures thus reveals heterogeneous trends over green technologies patterns, with in addition Human capital and expenditure on research and development playing an important part as drivers. In an era of radical technological change and in front of the necessity to form solid coalitions to manage international public goods, the heterogeneity of countries and groups of agents is of extreme importance to better understand economic development paths, possibly correcting technology-driven divergences by national and supranational policy actions on innovation, training, environmental domains.