Co-Creation Over R&D: External Knowledge as the Engine of Green Innovation in Italian SMEs

The transition towards a green and net-zero economy has become a strategic priority for firms and policymakers, placing increasing pressure on SMEs to integrate diverse forms of knowledge to achieve both environmental and economic objectives. A recurring yet not fully resolved question is whether co-creation among demand- and supply-side actors is associated with firms' environmental performance while also contributing to firm-level economic outcomes. Drawing on survey data from 6646 Italian firms, this paper investigates the associations between co-creation, digital technologies, government support, and green innovation. Using a CDM-inspired two-stage econometric framework, we find that co-creation and external enablers are strongly associated with green innovation. Green innovation is also positively associated with firm performance, suggesting that environmentally oriented innovation may be linked to economic benefits for SMEs. Moreover, our results indicate that internal R&D intensity has no significant direct association with green innovation among SMEs. These findings suggest that SMEs often rely on a network-intensive model of green innovation, in which external collaborations play a central role, while internal R&D intensity becomes complementary only as firms develop greater organizational capacity.