Understanding the determinants of technological change is imperative to successfully introduce environment-friendly technologies for the sustained development of countries. This dissertation presents one descriptive and two empirical essays based on a comprehensive model of technological change that unifies environmental policy making and policy-induced innovation and diffusion of technologies.

Analyzing data from interviews the first essay finds policy-makers reduce costs of adoption by following regulations that can be met with proven technology. Regulators ensure readiness of the industry prior to imposing new regulations. Opening the industry to foreign trade and investments encourage collaborations and makes procurement of technologies easier. It is not unavailability of technologies but rather the inability of related sectors to provide requisite quality fuels that may act as a stumbling block in adopting tighter emissions standards.

One major contribution of this dissertation is the creation of a panel dataset of emissions control technologies patented in Asia. The second essay describes this dataset and provides a brief history of technologies invented globally. Patent trends indicate there is international technology transfer while patent characteristics suggest that innovative activity may not primarily be policy-driven. The third essay explores the extent to which countries respond by original innovative activity vis-à-vis adopting foreign technologies. Regulations indirectly induce domestic innovation by encouraging the diffusion of foreign technologies, which are then adapted by domestic inventors for local use. Foreign direct investment in the form of joint-ventures is a particularly important channel of diffusion. Positive spillovers from the stock of foreign knowledge increases domestic capacity to innovate.

A unified look at policy-adoption and policy-induced innovative activities offers a better opportunity to explore issues of effectiveness of policy-making for technological change. This document contributes to the literature on induced innovation and international diffusion by exploring the process of environmental technological change in the developing world and postulates that the technological change mechanism in developing countries differs from those in leader countries.