Effects of environmental regulations on the total factor productivity in Korea from 2006–2014

Abstract

ABSTRACT This study investigates the effects of environmental stringency on the productivity in Korea. Previous studies have focused on the effects of environmental regulations on productivity at either the firm or industry level. In this study, the effects that the environmental protection expenditure have on the total factor productivity (TFP) are analysed using a firm- and industry-level panel dataset for 2006–2014. A dynamic panel data model was used for the industry-level analysis of the panel data from 2006–2014, and a multilevel linear model was used for the firm-level analysis of the data from 2010–2014. The results indicate that the environmental protection expenditure has a negative correlation with the TFP, including a lag variable of environmental research and development. The multilevel linear model analysis shows similar results for the environmental protection expenditure and environmental research and development. These findings suggest that the Porter hypothesis, which suggests that well-designed environmental policies may enhance productivity, is not applicable for Korea.