Environmental Costs and Competitiveness. A Product-Specific Test of the Porter Hypothesis

Abstract

Empirical surveys find no significant impact of environmental regulation and environmental costs on international competitiveness. We show that this is a logical consequence of the principle of comparative advantage. Other explanations can be that developed countries have very diversified exports and that most surveys do not link regulation to specific products. The Porter hypothesis states that environmental regulation can lead to improved competitiveness. Many authors only find 'anecdotal' evidence for this hypothesis but we show that when regulation is linked to specific products -- we analysed CFC-using industries -- there is clear evidence for the Porter hypothesis.