Stringency of regulation and innovation in waste management: an empirical analysis on EU countries

Abstract

The transformation of waste into a valuable resource is a key process towards sustainable development and green growth and therefore represents a major concern for policy-makers. Technological innovation plays a crucial role in waste management and therefore understanding the way in which regulation may spur innovation in this domain constitute is crucial. This article aims at testing the weak version of the Porter hypothesis in waste management, by analysing the dynamic relationship between the stringency of environmental regulation and innovation in a European cross-country setting. Results confirm that the stringency of regulation positively affects innovation, but the effect is non-linear, suggesting the existence of an optimal cap to the stringency of regulation. Furthermore, the overall environmental conditions of the country, as well as the presence of highly polluting sectors hinder the development of environmental innovations.