Environmental regulation and productivity growth: main policy challenges

In this paper, we empirically analyse the environmental regulation-productivity nexus for 14 OECD countries in the period 1990-2013. Our findings support the hypothesis that environmental policies have a productivity growth enhancing effect through innovation as suggested by Porter and Van Der Linde (1995). We provide evidence that both market and non-marked based policies foster labour and multifactor productivity growth and that the positive association is better captured by environmental adjusted productivity indicators. Moreover, we find that productivity increases resulting from changes in the environmental regulation pass through a stimulus to capital accumulation and this effect is concentrated in high ICT intensive countries. Overall, the need to speed up the transition towards a “green economy” for environmental protection purposes can be seen also as an opportunity to improve competitiveness generating a virtuous circle between innovation and environmental friendly production techniques.