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Environmental Innovations and Firm Profitability: Unmasking the Porter Hypothesis

Sascha Rexhäuser () and Christian Rammer

Environmental & Resource Economics, 2014, vol. 57, issue 1, 145-167

Abstract: We examine impacts of different types of environmental innovations on firm profits. Following Porter’s (Sci Am 264(4):168, 1991 ) hypothesis that environmental regulation can improve firms’ competitiveness, we distinguish between regulation-induced and voluntary environmental innovations. We find that innovations which do not improve firms’ resource efficiency do not provide positive returns to profitability. However, innovations that increase a firm’s resource efficiency in terms of material or energy consumption per unit of output have a positive impact on profitability. This positive result holds for both regulation-induced and voluntary innovations, although the effect is greater for regulation-driven innovation. We conclude that the Porter hypothesis does not hold in general for its “strong” version, but depends on the type of environmental innovation. Our findings rest on firm-level data from the German part of the Community Innovation Survey 2008 (CIS 2008). Copyright Springer Science+Business Media Dordrecht 2014

Keywords: Competitiveness; Environmental innovation; Environmental regulation; Porter hypothesis (search for similar items in EconPapers)
Date: 2014
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