The Impact of Environmental Regulation on Productivity in German Industries

Klaus Conrad and Dieter Wastl

Empirical Economics, 1995, vol. 20, issue 4, 615-33

Abstract: The objective of this paper is to adjust a traditional total factor productivity (TFP) measure for the direct effect of environmental regulation on material and capital input. For this purpose we consider the fact that part of material input and pollution abatement capital have not been used to increase output but to cover the cost of using the environment as a factor of production. Therefore, TFP growth rates are lower if part of the material input is allocated to abatement activities instead of producing output. We propose to treat compliance with environmental regulation as an unproductive input linked to the use of productive material input. Our aim is to answer and discuss two questions. How to measure the effect of environmental regulation on TFP and does the effect matter. We examine data from 1975-1991 for 10 pollution intensive German industries.

Date: 1995
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