Environmental Regulation and Investment: Evidence from European Country-Industry Data

Andrea Leiter, Arno Parolini () and Hannes Winner

No 2010-1, Working Papers in Economics from University of Salzburg

Abstract: This paper contributes to the empirical literature on the relationship between environmental regulation and firm behavior. In particular, we ask whether and how strongly an industry's investment responds to stringency in environmental regulation. Environmental stringency is measured as (i) an industry's total current expenditure on environmental protection, and (ii) a country's revenue from environmental taxes. Focusing on European industry level data between 1995 and 2005, we estimate the di erential impact of environmental stringency on four types of investment: gross investment in tangible goods, in new buildings, in machinery, and in `productive' investment (investment in tangible goods minus investment in abatement technologies). Both environmental variables enter positively, and their quadratic terms exhibit signi cantly negative parameter estimates. This, in turn, indicates a positive but diminishing impact of environmental regulation on investment.

Keywords: Investment; environmental regulation; pollution abatement costs; Europe. (search for similar items in EconPapers)
JEL-codes: D92 H23 Q52 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-01-13, Revised 2010-01-13
New Economics Papers: this item is included in nep-eec, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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