**1. Introduction**

Eco-innovation is a concept of great importance to business and policy makers, which covers many innovations of environmental benefit [1]. Eco-innovation is defined as any form of innovation aiming at a significant and demonstrable advancement towards the goal of sustainable development, through reducing the impacts on the environment or achieving an efficient and responsible use of resources, including both intended and unintended environmental effects from innovation, as well as not only environmental technology but also processes, systems and services [2]. Eco-innovation is becoming an indispensable tool for stimulating efficiency in the use of resources. However, to promote eco-innovation initiatives, the new economic investment needed at the local and national level is the support for research, information and education of both businesses and consumers. All the aforementioned actions can contribute towards the overcoming of the main barriers to eco-innovations by achieving an efficient use of resources, by increasing investments and by ensuring that all relevant policies influence the efficiency of resources in a balanced manner. Currently the European Union recognises eco-innovation as the main driver for sustainable development,

and for this reason it has developed a specific indicator that can measure the level of eco-innovation: the Eco-Innovation Scoreboard (Eco-IS). This tool, developed by the European Eco-Innovation Observatory (EIO), allows for the evaluation of the performance of European countries and the comparison between the results obtained, outlining strengths and weaknesses. The Eco-IS consists of 16 indicators that are grouped into five separate components: (1) eco-innovation inputs (R&D appropriations, staff and researchers and green investments in early stages); (2) eco-innovation activities (companies that have implemented innovation activities aimed at reducing material and supplying energy per unit of output); (3) eco-innovation output (measured through patents, publications and media coverage); (4) environmental results (i.e., the benefits to the environment assessed with reference to the "productivity" of materials, energy and water, together with the "intensity" of greenhouse gas emissions); and (5) socio-economic results (based on performance data of "eco-industries", including those relating to exports, employments and turnover). Obviously, the assessment of eco-innovation results is a set of different indicators. This creates opportunities for new interrelations or impact assessments. On the one hand, improving the quality of technology in the field of ecology is associated with increased income, with the growing turnovers. On the other hand, economic progress based on environmental improvement is unthinkable without the openness of the economy to trade, exchange or investment. In both cases, the cooperation is an encouraging trade policy instrument. Trade cooperation between European Union Member States is based mainly on the intra-industry trade (IIT) [3]. IIT takes place when goods from the same sector are traded in both directions. Thus, the more similar two countries are, the more their trade develops towards IIT. Spulber (2008) [4] counted intra-industry trade as one of the most important properties of technological progress in international trade, as the expected variety of goods traded in equilibrium increases when innovative technology trade increases, thus the countries draw benefits from intra-industry trade [4]. IIT in intra-regional trade has higher increases than that in inter-regional trade (inter-industry trade is defined as trade between two countries where the goods are from different sectors). This situation is valid for EU countries and comes as a consequence of the European integration process [5].

In the last decades, IIT has also been used for other purposes. For measuring eco-innovations, no single method or indicator is likely to be sufficient. In this paper, we discuss the role of the IIT as an alternative indicator for eco-innovation performance in EU countries. The relationship between trade and the environment, and the role of IIT have become increasingly important. In the literature, it is reported that the growth in international trade is characterised by intensive pollution [6]. The main role of the Grubel–Lloyd Index is to validate and verify if there is intra-industry trade or no inter-industry of a particular product among countries. In our paper, the authors validate and verify whether the Grubel–Lloyd Index is a proxy indicator of the eco-index. Despite the widespread view over the years, the description of the IIT measures has had little effect on the environment; the sustainability efforts of modern society require that a new evidence and literature approach be explored. Our study has investigated the linkages between the eco-innovations and the magnitude in intra-industry trade between EU countries for the period 2010–2018. Our goal is to verify the validity of the eco-index through another one, using a reliable and well-established index such as the Grubel–Lloyd index. We adopted the idea to promote the alternative usage of an old and well known index as the Grubel–Lloyd index, the use of which would not create additional obstacles for researchers. The authors' thesis is that the Grubel–Lloyd index is applicable to all sectors, whether or not they pollute the environment. The interrelation between the eco-innovation index and intra-industry trade can gather more information about sustainability and make credible and transparent policy-making decisions about the eco-innovative future policy of each country. For this purpose, we used the Grubel–Lloyd index as a measure of IIT. The paper is organised as follows: Section 2 describes the existing relevant literature. Section 3 provides stylised facts on the eco-innovation index by Eurostat for the period 2010–2018, by country and by periods. We present the Grubel–Lloyd indexes calculated on data from WITS (COMtrade) database, split on SITC Revision 1, one-digit ("Section") and two-digit

("Division") per year and per country. Finally, an empirical evidence of the linkage between the eco-innovation index and the average Grubel–Lloyd values for different years, is presented.

#### **2. Literature Review**

Links between trade and sustainability naturally draw from international trade theory [7]. Trade may increase pollution and in the same time trade restrictions can reduce pollution. A weakening of environmental policy will increase a country's net export of polluting goods and will help domestic firms to compete with their foreign rivals. According to the Porter hypothesis, the environmental regulation stimulates technological innovation and thereby has positive effects on both the economy and the environment [8]. International trade has always been considered as a channel for transfer of technology from industrial to relatively less developed countries [9,10]. The development of the sustainability concept over the last decades has also made its requirements on trade indexes. The Heckscher–Ohlin–Samuelson (HOS) model is the natural starting point for exploring sustainability. In 1975, Grubel and Lloyd published a paper which stimulated multiple studies in the field of intra-industry trade (IIT). The concept of the authors is based on the HOS model for similar factor endowments and the increasing level of integration between European countries. Over time, the index has developed further to encompass the influence of factors such as trade costs, investment costs, and production [11]. Furthermore, it has become necessary to calculate indicators that reflect the ecological state of each or group of countries in terms of their technological progress and trade policy. Since the seminal Grubel and Lloyd paper (1975) [12], a vast literature on IIT has emerged (for reviews see Ambroziak (2012) [13] and Greenaway and Milner (2005) [14]). Vertically differentiated IIT models step on various versions of the classical Heckscher–Ohlin model, while horizontally differentiated IIT is modelled mostly under monopolistic competition theories, initiated by Dixit and Stiglitz in 1977 [15]. Vertical IIT is the dominant type of trade [16]. For example, for Europe [17], Fontagne et al. investigated in 1998 the nature of trade flows for 1980–1994, demonstrating that there exists a positive link between vertical IIT and horizontal IIT, and that vertical IIT strongly predominates [17]. Different studies demonstrate the effects of levels of aggregation on IIT indexes, emphasising the disentangling of vertical and horizontal intra-industry trade as a great step forward [18]. These studies have the potential to be a basis for the development of eco-innovative techniques and other environment sensitive innovations. Only recently, there have been attempts to specifically measure eco-innovations. The main problem with eco-innovations is their multifaceted nature, therefore multiple approaches have been proposed. As emphasised in Arundel (2009) [1], no single method or indicator is likely to be sufficient to measure eco-innovation. The most widely known are the results of the MEI project (Measuring Eco-Innovation) of the EU and the OECD workshop on greening regional trade agreements.The MEI classification of eco-innovations is: environmental technologies, organisational innovation, product and service innovation, green system innovations. Measuring has been proposed applying survey analysis, patent analysis, and digital and documentary source analysis [19]. Recent studies by Cherniwchan in 2017 and Cherniwchan et al., also in 2017, focus on developing a theory on the links between trade and environment [20,21]. Trade as an indicator for eco-innovation has been used only in limited areas—"Eco-industry, its size, employment, perspectives, and barriers to growth in an enlarged EU" made for DG Environment in 2006 [22] represents an information guideline about exports and imports in selected eco-industry sectors. A crucial question is whether trade in polluting goods is intra-industry, or is driven by comparative advantage. There is little evidence that polluting goods production has shifted towards low-income countries due to trade liberalisation, but there is some evidence that exporters are cleaner than other firms.The inclusion of eco-innovations into the scope of intra-industry trade (IIT) research helps to expand the scope of study of both international trade and intranational trade. There is vast literature on trade liberalisation and the environment, with some publications focusing on IIT. Over the years, different authors have been discussing the interrelation between eco-innovations and intra-industry trade in search of better environmental management solutions for countries or regions. However, the usefulness of a

specific index as a precise and accurate one has not been calculated. Therefore, the views of some authors closest to the topic of this study are presented. According to J. Roy (2017) [6], the empirical examination of IIT and the environment is overdue and/or relatively unexplored. The increasing interest in greenhouse gas emissions, energy consumption, pollution-intensive industries, etc. over the last years has determined the growing interest in the ecological impact–IIT demand relationship. In the literature, there has been a discussion on trans-border pollution [23,24], but the centre of the debate was around the North–South division. Aralas and Hoehn's analysis of 2010 [25] suggests that greater openness to trade or increased liberalisation of trade leads to lower levels of emissions and therefore is beneficial to the environment.The deepening European economic integration fosters IIT, especially in Eastern European countries, where the existence of fluctuations in IIT indexes is quite evident [26]. Other studies are linked with the attempt of modelling the optimal tax policies and policy reforms in the presence of trans-border pollution [27], as well as studies of the optimal subsidies issue [24]. Using the data of the Environmental Performance Index of the World Bank and the UN Commodity Trade Database of UN Comtrade for more than 200 countries, Roy (2017) concluded that IIT is typically characterised by a positive impact on the environment. IIT is undoubtedly more pro-environment than overall trade. Fung and Maechler (2007) [28] found that the impact depends on the nature of pollution (local, transboundary or global) and on the type of the country which liberalises trade; accordingly, the environmental effects are not necessarily negative. Benarroch and Weder (2006) [29] in their overview also found that increased output need not come at the cost of a higher pollution. Jo et al. (2015) [30] also considered the positive linkage between eco-innovation and technologies as a motivation for trade and socio-economic development. If eco-innovation incorporates new technologies in favour of the market, for example green products, the economy of each country evolves thanks to sustainable industrial systems. The authors called this effect "the ripple effect for sustainability" [30]. The report of Sweden's Globalisation council (2009) [31] also studies the effects of trade on the environment. Some evidence of this report suggests that trade and growth can exacerbate other measures of environmental degradation, particularly CO2 emissions (carbon dioxide). In environmental policy studies, there is some evidence that tighter environmental standards at home can lead to less emissions abroad [32]. At the same time, it is emphasised that no single country can address global environmental problems on its own, due to the freerider problem. Thus, environmental policy requires international cooperation, and international trade puts significant downward and upward pressure on ecological issues. To summarise, environmental issues in connection with IIT have rarely been studied. There are some attempts to use IIT as a proxy for other indicators— i.e., measures for the change of IIT are mainly used as indicators for labor adjustment [33]. This has made the current research relevant and useful to researchers in both the eco-innovation and trade area of studies.
