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Testing the Porter hypothesis: the effects of environmental investments on efficiency in Swedish industry
Umeå University, Faculty of Social Sciences, Centre for Regional Science (CERUM).
2013 (English)In: Journal of Productivity Analysis, ISSN 0895-562X, E-ISSN 1573-0441, Vol. 40, no 1, 43-56 p.Article in journal (Refereed) Published
Abstract [en]

The main objective of this paper is to test the Porter hypothesis by assessing static and dynamic effects of environmental policy on productivity. According to the hypothesis, stringent environmental regulations have dynamic effects on firm performance, and these effects eventually generate profits that offset the adaptation costs. We extend previous analyses by using unique data on environmental protection investments in the Swedish manufacturing industry as a proxy for environmental stringency. These data enable us to separate environmental protection investments into pollution prevention and pollution control. This distinction is crucial since the hypothesis claims that it is investments in prevention that have positive dynamic effects on firm performance. To test the hypothesis, a stochastic production frontier model is estimated where firm inefficiency is a function of investments in environmental protection. In general, we find no support for the Porter hypothesis within the time frame of our study, indicating that environmental regulations lead to efficiency losses. This result is even stronger in the harshly regulated pulp and paper industry.

Place, publisher, year, edition, pages
Springer, 2013. Vol. 40, no 1, 43-56 p.
Keyword [en]
Environmental protection investments, Industry efficiency, Porter hypothesis, Stochastic production frontier, C61, D21, D24, Q50, Q58
National Category
Economics and Business
URN: urn:nbn:se:umu:diva-78943DOI: 10.1007/s11123-012-0335-6ISI: 000320962300004OAI: diva2:638288
Available from: 2013-07-29 Created: 2013-07-29 Last updated: 2013-07-29Bibliographically approved

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Marklund, Per-Olov
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Centre for Regional Science (CERUM)
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