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Corruption pays off: How environmental regulations promote corporate innovation in a developing country

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  • Fu, Tong
  • Jian, Ze

Abstract

The Porter hypothesis asserts that well-designed regulations can foster innovation for a “win-win” solution, but it requires environmental regulations to be strict but flexible, which is impractical for most developing countries. This paper explores how environmental regulations in a developing country can spur corporate innovation. Using the geographic distribution of wars during 1644 and 1911 as an instrument, we document that the stringency of environmental regulations in China promotes corporate innovation only when interacted with a region with high corruption. We further identify that the causal effect of the stringency on corporate innovation is mediated by bribery expenditures statistically and economically, and all the corresponding direct effects are insignificant. Ultimately, this paper confirms that corruption is the key mechanism in the Porter effect in a developing country.

Suggested Citation

  • Fu, Tong & Jian, Ze, 2021. "Corruption pays off: How environmental regulations promote corporate innovation in a developing country," Ecological Economics, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:ecolec:v:183:y:2021:i:c:s0921800921000276
    DOI: 10.1016/j.ecolecon.2021.106969
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    More about this item

    Keywords

    China; Corporate innovation; Corruption; Environmental regulat ion;
    All these keywords.

    JEL classification:

    • P39 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Other
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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