Environmental Regulation and Competitiveness: Empirical Evidence on the Porter Hypothesis from European Manufacturing Sectors

56 Pages Posted: 9 Jul 2014

See all articles by Yana Rubashkina

Yana Rubashkina

Catholic University of the Sacred Heart of Milan

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP); GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2014

Abstract

This paper represents an empirical investigation of the "weak" and "strong" Porter Hypothesis (PH) focusing on the manufacturing sectors of European countries between 1997 and 2009. By and large, the literature has analyzed the impact of environmental regulation on innovation and on productivity generally in separate analyses and mostly focusing on the USA. The few existing studies focusing on Europe investigate the effect of environmental regulation either on green innovation or on performance indicators such as exports. We instead look at overall innovation and productivity impact that are the most relevant indicators for the "strong" PH. This approach allows us to account for potential opportunity costs of induced innovations. As a proxy of environmental policy stringency we use pollution abatement and control expenditures (PACE), which represent one of the few indicators available at the sectoral level. We remedy upon its main drawback, that of potential endogeneity of PACE, by adopting an instrumental variable estimation approach. We find evidence of a positive impact of environmental regulation on the output of innovation activity, as proxied by patents, thus providing support in favor of the "weak" PH in line with most of the literature. On the other front, we find no evidence in favor or against the "strong" PH, as productivity appears to be unaffected by the degree of pollution control and abatement efforts.

Keywords: Environmental Regulation, innovation, productivity, competitiveness, porter hHypothesis

JEL Classification: Q50, Q52, Q55, Q58, O31

Suggested Citation

Rubashkina, Yana and Galeotti, Marzio and Verdolini, Elena, Environmental Regulation and Competitiveness: Empirical Evidence on the Porter Hypothesis from European Manufacturing Sectors (June 30, 2014). Available at SSRN: https://ssrn.com/abstract=2463538 or http://dx.doi.org/10.2139/ssrn.2463538

Yana Rubashkina

Catholic University of the Sacred Heart of Milan ( email )

Milan, Milan
Italy

Marzio Galeotti (Contact Author)

University of Milan - Department of Environmental Science and Policy (ESP) ( email )

2 via Celoria
Milano, 20133
Italy
+39-2-50316470 (Phone)
+39-2-50316486 (Fax)

HOME PAGE: http://www.unimi.it/chiedove/cv/ENG/marzio_galeotti.pdf?1531977155891

GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks ( email )

via Rontgen
Milan, 20123
Italy
+39-2-58362340 (Phone)

HOME PAGE: http://https://www.green.unibocconi.eu

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change ( email )

C.so Magenta 63
Milano, 20123
Italy

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