Environmental regulation and international competitiveness: a critical review

Abstract

In this paper, we critically review the literature on environmental regulation and competitiveness at a national level. The concept of international competitiveness (in relation to environmental regulation) is assessed in two broad schools of thought: neoclassical economics and the competitiveness school to which the Porter hypothesis belongs. We identify the pollution haven hypothesis (PHH) as the least common denominator for empirical evaluation of the main themes of these two competing schools of thought. As a minimum, one would need to find evidence on PHH to question the validity of the Porter hypothesis. A fully legitimate test of the Porter hypothesis should, inter alia, have a particular emphasis on the impact of well-designed environmental policies on high-value sectors of an economy. Examining the recent empirical literature on the PHH we find that the evidence remains inconclusive. This leaves the Porter hypothesis largely unscathed and challenges the widely-held view of the existence of a trade-off between economic performance and environmental quality.