Environmental regulation and productivity growth in the euro area: Testing the porter hypothesis

Nicola Benatti, Martin Groiss, Petra Kelly and Paloma Lopez-Garcia

Journal of Environmental Economics and Management, 2024, vol. 126, issue C

Abstract: This paper examines the impact of changes in the stringency of environmental regulations on productivity growth. We exploit several data sources, including the OECD Environmental Policy Stringency Index and balance sheet information from ORBIS and iBACH, to test the Porter hypothesis, according to which firms’ productivity can benefit from more stringent environmental policies. We estimate the regulatory impact over a five-year horizon using panel local projections. To identify the direction of the effects, we estimate CO2 equivalent emissions for all firms in our sample using a machine learning algorithm. As suggested by the country-level analysis and confirmed by the firm-level analysis, policy tightening negatively affects productivity growth of high-polluting firms and to a larger extent than that of their low-polluting peers. Hence, we do not find support for the Porter hypothesis in general. However, not all policies have the same impact – non-market based policies are the most detrimental to productivity growth – and not all highly polluting firms are affected in the same way – the negative impact is mitigated for large firms, which may benefit from easier access to finance and greater innovativeness.

Keywords: Environmental regulation; Emissions; Porter hypothesis; Productivity; Euro area (search for similar items in EconPapers)
JEL-codes: O44 Q52 Q58 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Environmental regulation and productivity growth in the euro area: testing the Porter hypothesis (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:126:y:2024:i:c:s009506962400069x

DOI: 10.1016/j.jeem.2024.102995

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