Porter Hypothesis Research Articles

Beyond Porter hypothesis: Empirical evidence of heterogeneous and contextual economic returns of eco-innovations on a sample of European SMEs

The various versions of the Porter hypothesis suggest that well-designed environmental public policies may have positive effects on eco-innovation adoption and on the profitability of enterprises on the long run. However, these effects may be heterogeneous depending on the eco-innovation at stake and influenced by the other enterprises in competition. Using a repeated cross-country European survey on SME, we estimate mixed Ordered Probit with correlated random effects and sample selection. We are able to disentangle direct and indirect determinants of costs while accounting for the internal, contextual and public policies levers of eco-innovation adoption. While testing the three versions of Porter's hypothesis, we extend previous work by taking into account the heterogeneous impact of different eco-innovations on profitability, on the one hand, and the impact of eco-innovation adoption by one firm on another, on the other hand. Our results have valuable policy implications for policymakers and SMEs.

Does green mean paying? Environmental innovations and financial performance: Meta-Analytical insights/approach

Interest in the impact of environmental innovations on firms’ financial performance has surged over the past two decades, but studies show inconsistent results. This paper addresses these divergences by analyzing 74 studies from 1996 to 2022, encompassing 4,390,754 firm-year observations. We developed a probability-based meta-analysis approach to synthesize existing knowledge and found a generally positive impact of environmental innovations on financial performance, with a probability range of 0.85 to 0.97. Manufacturing firms benefit more from environmental innovations than firms in other industries, and survey-based studies report a more favorable relationship than those using secondary data. This study contributes to existing knowledge by providing a comprehensive aggregation of data, supporting the resource-based view (RBV) and the Porter hypothesis. The findings suggest significant policy implications, highlighting the need for tailored incentives and information-sharing mechanisms, and underscore the importance of diverse data sources in research to ensure robust results.

Quantity or quality? The impact assessment of environmental regulation on green innovation

As technological progress aimed at realizing resource conservation and environmental protection, green technology innovation provides an important nudge for sustainable development. Is the Porter Hypothesis valid in China's environmental system? This paper's focus centers on the Clean Air Action Plan, the paradigmatic environmental regulation in China. Based on the patent data and classification, China's green innovation activities are measured from the two dimensions of quantity and quality. Using the regression control method, this paper assessed the policy effect of the Clean Air Action Plan on green technology innovation by constructing a counterfactual framework. The empirical findings indicate that environmental regulation has positively stimulated green innovation activities. However, regarding both statistics and economic magnitude, the positive impact on patent quality is significantly smaller than on patent quantity. Further analysis shows that policy effect is heterogeneous in different scopes: the quantitative and qualitative improvement is only embodied in green patents of waste management, which implies that innovation is concentrated on end-of-pipe treatment, with a pronounced path dependence in green innovation. This paper provides new micro-level evidence and theoretical support for exploring pathways to green transformation.

The Impact of Carbon Emissions Trading Policy on Regional Economy and Pollution Reductions in Chinese Provinces

Carbon emissions trading policy is an important tool to achieve carbon peaking and carbon neutrality goals. In order to explore the effectiveness of carbon emissions trading policy, this paper adopts the difference-in-differences model to analyze the effects of China’s pilot policy on regional economic development and pollution reductions. The results show that carbon trading policy can significantly promote economic development and reduce total carbon emissions, industrial SO2 emissions and solid wastes production of pilot regions. Further research finds that there is significant regional difference in policy effectiveness, with the policy more effective in western areas. In addition to direct effects, carbon trading policy could exert an indirect effect on carbon emissions, air quality, industrial solid wastes and regional economic development by optimizing energy consumption structures and industrial structures and increasing technological investment. This result verifies the “Porter hypothesis”. China should improve the construction of national carbon trading markets, covering more industries, considering the regional differences and negative spillover effect.

Navigating Carbon Peaking and Neutrality in MENA: The Impact of Foreign Direct Investment and Trade Openness Using Panel PCSE and FGLS Techniques

ABSTRACTIn response to the global challenge of climate change and the drive towards carbon neutrality, this study investigates the effects of foreign direct investment (FDI) and trade openness (TO) on carbon emissions (CEM) within the Middle East and North Africa (MENA) region. The research spans 18 countries from 1990 to 2022, focusing on Sustainable Development Goal 13. Utilizing Porter's hypothesis and the Environmental Kuznets Curve (EKC) theory, the study applies quantitative methods including panel corrected standard errors (PCSE) and feasible generalized least squares (FGLS) to ensure robustness. To address potential endogeneity, two‐stage least squares and lagged effect estimations are employed. The findings reveal that both FDI and TO are associated with reduced CEM, indicating positive environmental impacts. Also, the pairwise causality tests show bidirectional causality between FDI, TO, and CEM, while a unidirectional causality is found from industrialization (IND) and energy consumption (EC) to CEM. These results underscore the importance of integrating FDI and TO into strategies for achieving carbon neutrality and advancing sustainable development goals, offering actionable insights for policymakers.

Empirical Determinants of Innovation in European Countries: Firm-level Analysis Based on CIS 2018

This study examines the role of perceptions about environmental regulations and their influence on the innovative performance and productivity of firms in Germany, Southern Europe, and Central and Eastern Europe. Utilizing the CDM model for innovative performance and data stemming from the Community Innovation Survey (CIS), we explore the alignment with the Porter hypothesis, which posits that well-designed environmental regulations can stimulate technological innovation and enhance market competitiveness. Our findings present a mixed view: in Germany, positive perceptions about environmental regulations correlate with the initiation of innovation activities, contributing to an increase in labour productivity. This supports the Porter hypothesis, evidencing that regulations can lead to beneficial ‘innovation offsets’ such as reduced resource use and pollution. Conversely, in Southern Europe and Central and Eastern Europe, the perceptions about these regulations on innovation activities are insignificant, with no considerable correlation observed between perceptions about environmental regulations and innovation output. Our findings are crucial for policymakers, environmental regulators, and business leaders aiming to leverage environmental regulations to boost innovation and competitiveness within their regions.

동태적 관점에서 본 환경정책과 생산성의 관계: 제조업을 중심으로

This study analyzed the effect of increasing environmental policy stringency on a firm's TFP from a dynamic perspective. For the analysis, the TFP of Korean manufacturing firms was estimated from 2006 to 2018, and the OECD's environmental policy stringency index was used. The baseline model was set to represent that one-year lag of environmental policy stringency affects TFP. And environmental policy stringency was considered by dividing it into Korea's environmental policy stringency and relative environmental policy stringency. The analysis model took a dynamic perspective by considering the persistence of TFP shock and the persistence of environmental policy stringency. Dynamic panel analysis was conducted to consider the persistence of TFP shocks, and the Porter hypothesis was tested by changing the time lags of environmental policy stringency. As results, it was found that the increase in one-year lag of environmental policy stringency decreased firm's TFP. This was shown in Korea's environmental policy stringency as well as in the relative environmental policy stringency. However, the increases in two-year and three-year lags of environmental policy stringency were shown to lead to productivity improvement, showing that the Porter hypothesis was supported after two periods. This result supports the Porter hypothesis as a more long-term phenomenon.

Can ESG ratings drive digital innovation in enterprises? Exploring Porter's hypothesis in the digital era

AbstractThe holistic reshaping and advancement of the global economy inherently demand the creation of synergies between digitization and environmentally sustainable development practices. This study pioneers an evaluation of the impact of environmental, social, and governance (ESG) ratings on corporate digital technology innovation, contrasting with existing literature. Using data from A‐share listed firms for 2011–2020, our research reveals that implementing ESG ratings stimulates corporate digital technology innovation across various dimensions, thereby confirming the presence of the Porter hypothesis in the digital era. Furthermore, these findings are substantiated through the utilization of various methodologies, such as synthetic difference‐in‐differences (SDID), multi‐period DID, event studies, and staggered DID. In addition, mechanism tests delve into the underlying channels through which ESG ratings stimulate corporate digital technology innovation, elucidating their ability to promote innovation through motivation stimulus and resource supply effects. Moreover, the heterogeneity analysis carried out in this study uncovers diverse effects on digital technology innovation stemming from factors such as firm characteristics, industry competitiveness, industry nature, regional intellectual property protection (IPP), and factor market development. Nevertheless, companies should refrain from blindly pursuing high ESG ratings to avoid overcorrecting because there is an inverse U‐shape relationship between ESG ratings and corporate digital technology innovation. These findings provide the theoretical basis and empirical evidence for the widescale utilization of ESG ratings. Thus, they offer useful guidance for executives and other policymakers aiming to foster a win–win scenario of digitization and green development.

The effects of environmental innovations on labor productivity: how does it pay to be green

ABSTRACT Due to growing environmental concerns, environmental innovations (EIs) have gained prominence in firms’ strategies. This study delves into the productivity effects of regulation-driven environmental innovations using data from four Finnish Community Innovation Survey (CIS) waves. Instrumental variable estimation controls for the endogeneity of voluntary and regulation-driven EIs in a novel way. Our results support the prior findings on the strong Porter hypothesis that environmental regulation improves performance. However, the results also hint at a delay before environmental innovations translate into higher productivity. We also find that regulation-driven EIs improve performance in services. Small firms do not benefit relatively less, although they are inclined to do fewer voluntary EIs. Environmental regulation may favor firms in the Nordic context due to firms being close to the industry frontier.

Stimulating innovation or enhancing productivity? The impact of environmental regulations on agricultural green growth

A comprehensive understanding of the impact of environmental regulations on agricultural green growth is crucial for formulating appropriate policy designs and achieving effective climate change mitigation. This study, based on the Porter Hypothesis framework, aims to propose our hypotheses in the influence of environmental regulations on agricultural green growth. This study first utilizes the Super-SBM model combined with the global Malmquist-Luenberger index to measure agricultural green growth in G20 countries. Subsequently, the study analyzes the impact of environmental regulations on agricultural technological innovation and green growth, highlighting variations among countries with different development levels. The results indicate: (1) Significant differences exist in agricultural green growth among G20 countries, generally exhibiting an increasing trend. (2) Environmental regulations have a significant impact on both agricultural green growth and agricultural technological innovation, but the effects of different types of environmental regulations are various. Furthermore, different conclusions are observed for countries with heterogeneous development levels. (3) There is a lag effect in the impact of environmental regulations on agricultural green growth and technological innovation, highlighting the importance of pre-establishing an environmental policy framework. (4) An inverted U-shape relationship exists between environmental regulations and agricultural green growth, while no such relationship is found in agricultural technological innovation.

The impact of environmental regulations on competitiveness and carbon leakage

A substantial amount of literature investigates environmental regulations and their effect on competitiveness. This often leads to a comparison of the two competing hypotheses: the pollution haven hypothesis and the Porter hypothesis. The former suggests that environmental regulations can positively affect country level competitiveness through green research and development, while the latter proposes that environmental regulations negatively affect competitiveness through higher production costs. In this paper, we argue that the comparison between these two hypotheses should not only be limited to competitiveness alone but should also include a focus on carbon leakage. We use a two-area stock–flow consistent macroeconomic model calibrated to match key variables for the Danish economy. We incorporate the effects of both the pollution haven and Porter hypotheses within the model. As an environmental regulation is implemented in the Danish economy, we find an immediate negative effect on competitiveness, but as the innovational process is allowed time to play in, as suggested by the Porter hypothesis, the effect on competitiveness turns positive. Furthermore, we find negative carbon leakage rates when the effects of the Porter hypothesis are included together with the pollution haven hypothesis, contradicting the quite large positive estimates found for small open economies in the current literature. We find that the negative carbon leakage rates are a result of including the empirically validated effects of the Porter hypothesis, which are excluded in the current literature.

Current trends in carbon emission trading: Theoretical perspectives, research methods and emerging themes

Since the inception of the EU carbon emissions trading market, it has experienced substantial growth. However, there is a shortage of comprehensive analysis on the policy implications of carbon emissions trading in the context of the low-carbon economy. The article utilizes bibliometric and content analytic methodologies to thoroughly examine the features and content of 116 relevant pieces of literature. Based on this analysis, a research model on the carbon emissions trading schemes is constructed. The study findings indicate a significant surge in the quantity of published material since 2021, with a predominant focus on terms related to the low carbon economy, such as environmental regulation and carbon emission. The research hotspots are related to transformation and upgrading and enterprise performance, etc. The research theory involves compliance cost theory, Porter's hypothesis theory, emissions trading theory and green innovation theory, empirical research is the main method of carbon emissions trading research. Emerging theme analyses are summarized in terms of the economic, environmental, technological and social effects of carbon trading. Finally, there are research conclusions and future research trends.

Does the environmental tax affect the within-firm pay gap? Evidence from China

The impact of the environmental tax on internal income distribution within firms is a crucial extension for evaluating the economic effects of environmental regulation policies. However, the existing literature focuses primarily on environmental effects and the Porter hypothesis, giving little attention to this topic. Using data from Chinese A-share listed companies from 2018 to 2021, we examine how the Chinese environmental protection tax affects intrafirm wage disparities. Our findings indicate that the environmental tax widens the pay gap between managerial and ordinary employees. Mechanism tests show that the environmental tax's governance effect raises managerial compensation levels, whereas cost effects decrease wages for ordinary employees. This effect is particularly pronounced in nonstate-owned firms, competitive industries, and regions with stricter environmental tax collection standards. This study makes an empirical contribution to our understanding of the effects of the environmental tax on income distribution in practice.

Carbon emission trading, carbon efficiency, and the Porter hypothesis: Plant-level evidence from China

Focusing on large thermal power plants in China, we examine the causal effect of carbon emission trading scheme (CETS) on their carbon emission efficiency. Using the staggered installation of CETS pilots as a natural experiment, we show that carbon emission trading significantly improves power plants’ carbon efficiency. Specifically, the CETS leads to a 6.9 % increase in carbon efficiency. The carbon efficiency growth effects are stronger for plants that are not state-owned, large in scale, or plants located in regions with high level of marketization. Moreover, the improvement in carbon efficiency mainly comes from the reduction in carbon emission, not the improvement in power generation level. The mechanism analysis indicates that the implementation of CETS increases the number of granted patents by as much as 23 %, which provides supporting evidence for the Porter hypothesis.

Exploring Economic Growth and Clean Fuel Technology: a Dumitrescu-Hurlin Approach

Objective: This research aims at exploring the relationship between economic growth and sustainable technology in 19 countries of G20 members. Theoretical Framework: In the Porter Hypothesis explained that in a regulations of environment will encourage innovation and improve economic performance. According to Porter, well-designed environmental standard can stimulate innovation and bring economic benefits such as increased competitiveness and efficiency Method: The research takes the data sourced from the World Bank and uses Pairwise Dumitrescu-Hurlin Panel Causality as the analytic tool. Results and Discussion: The results of research indicate that there is a causal relationship from ABB to GDP, but not vice versa. This means that the changes in ABB variable can be used to predict the changes in GDP variable, but not vice versa. Research Implications: The application of clean technology will increase the production efficiency and then will increase the economic output. This research contributes to the development of global policies that drive the balanced and environmentally-friendly growth in the whole world. Originality/Value: This research marks a novelty by applying the Pairwise Dumitrescu-Hurlin Panel Causality analysis tool, which allows for a deeper understanding of the causal relationship between economic growth and technological development in G20 countries. While most previous research limit themselves to simple causality analysis, this research details the dynamics of interactions among these factors.

Green taxes: Productivity effects of tax-based environmental regulations on heavily polluting firms

Environmental regulations, particularly tax-based measures, significantly impact firm productivity and corporate behavior. This study uses China's Environmental Protection Tax (EPT) law as a quasi-natural experiment to explore whether and how such tax-based environmental regulations influence the productivity of heavily polluting firms. Using a difference-in-differences approach, we find that the EPT law has positively impacted firm productivity by fostering higher research and development investments and encouraging the substitution of labor with capital. The productivity-enhancing effect is more pronounced for state-owned enterprises, large firms, firms with fewer financial constraints, firms receiving more government subsidies, and firms operating in less competitive sectors. These findings support the Porter hypothesis, suggesting that well-designed environmental regulations can stimulate innovation and improve competitiveness, ultimately enhancing productivity. This study underscores the importance of tax-based environmental regulations in promoting productivity and economic growth, providing valuable insights for policymakers aiming to balance environmental protection with economic development.

Research on the path of green technology innovation driven by the Environmental Protection Tax Law: Based on data of heavy polluting enterprises.

Environmental Protection Tax Law (EPTL) is a compulsory environmental regulation measure adopted by China to deal with environmental problems. However, with the advancement of implementation, the EPTL produces a dissimilation effect and damages the realization of the Porter hypothesis effect. The study examines the dissimilation effect of green technology innovation regulated by the EPTL using sample data from heavy pollution firms in China. According to the empirical test results: (1) the coordination between levies and administrations, differential tax rate setting, tax information sharing, definition of the scope of levy and administration, tax declaration counseling, and tax rate level verification produce the dissimilation effect; (2) the Porter hypothesis effect of the EPTL is the most significant in medium-sized enterprises and foreign-funded enterprises. By constructing the research model group of dissimilation effect, this study analyzes the application of environmental regulation in China's social and economic background, thus providing a reference for developing of the green economy.

The Proof Dilemma of Porter’s Hypothesis: Analysis of Its Verification Difficulties

The Porter Hypothesis, proposed by Michael E. Porter, suggests that stringent environmental regulations can enhance corporate innovation and competitiveness, challenging the traditional view that regulations increase business costs. It argues that regulations motivate firms to innovate, leading to improved productivity, cost reductions, and new market opportunities. However, there are proponents and critics in academia regarding the hypothesis. Supporters claim regulations change corporate behavior, reducing agency costs and boosting research and development. Critics argue that if win-win situations exist, businesses would naturally pursue them without regulatory incentives. Key challenges in proving or refuting the hypothesis include its various versions, the difficulty in quantifying innovation and competitiveness, the complex interplay between regulation, innovation, and competitiveness, and the varying impacts across industries and regions. Additionally, the effects may require a long time to manifest, and the hypothesis’s applicability is influenced by evolving environmental policies and market environments. Despite mixed empirical findings, the Porter Hypothesis provides a valuable framework for understanding the relationships among environmental regulation, innovation, and competitiveness, but its validation requires a more comprehensive assessment.

Environmental regulation and marine economic resilience: An institutional synergy perspective

Growing economic and industrial activities have put a large strain on the marine environment and ecosystem, presenting the marine economy with a tradeoff between economic expansion and environmental conservation. Though the Porter hypothesis depicts a win-win situation, it is crucial to consider the conditions under which environmental regulations generate positive effects. This paper is to study how the synergy between market-based and government-based environmental regulations affects marine economic resilience, whereas maintaining economic resilience is a prerequisite for promoting innovation and productivity. The findings indicate that each 1 % increase in the synergistic level of environmental regulations resulted in a 0.234 % improvement in marine economic resilience. The heterogeneity tests indicate that the relationship is still significant if the marine economy characterizes high industrial diversity, high industrial upgrading, and large scale, while environmental regulation in coastal provinces that marine industrial structure is not advanced negatively affects marine economic resilience.

How does environmental regulations affect digital green innovation of high-pollution enterprises? Empirical evidence from China

Digital green innovation (DGI) is crucial for high-pollution enterprises to improve green performance. However, there is a paradox regarding the impact of environmental regulations on DGI, primarily due to the varied effects of diverse regulatory tools. To resolve this paradox, based on Neoclassical Economics and the Porter Hypothesis, we empirically examine the influence of heterogeneous environmental regulations on DGI using a sample of high-pollution enterprises in China. The conclusions indicate that environmental protection tax has a pushing-forward effect on DGI, while environmental protection subsidy has a crowding-out effect. Moreover, enterprises' resource base and technological innovation capability positively moderate the impact of environmental protection tax. External pressure, internal incentives, pandering to governments, and managerial opportunism have mediating effects. Our research offers a new perspective to resolve the paradox of the effect of environmental regulations on DGI, explores potential mechanism as well as boundary condition, and proposes a new way of measuring DGI of enterprises with patents. Accordingly, we offer valuable policy recommendations about the formulation of environmental regulations, the facilitation of DGI, and the advancement of China's ecological civilization.