Digital technologies and eco-innovation. Evidence of the twin transition from Italian firms

This paper investigates how the twin transition (digital & green) unfolds within firms by relating investments in digital technologies to the propensity of eco-innovating production processes and models. Drawing on a heterogeneous theoretical background, digital technologies can be hypothesised to enable eco-innovation across the board. However, a greater eco-innovation impact is expected from Artificial Intelligence and from bundling digital investments. Using the new Permanent Census of Firms of the Italian National Statistical Office, these hypotheses are tested on a large sample of more than 150,000 firms. Results confirm that the contribution of digital technologies to a firm’s eco-innovation is mainly driven by investments in AI application areas, while investments in other digital technologies work more selectively. Moreover, new eco-innovative production processes and models benefit from bundling investments in different digital technologies, but with differences among firms of different size.