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Some micro-evidence on the "Porter Hypothesis" from Austrian VOC emission standards

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  • Roediger-Schluga, Thomas

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Abstract

In the context of the discussion on the 'Porter Hypothesis', a sizeable amount of research has been devoted to empirical tests of the impact of environmental regulation on both competitiveness and innovation. The standard practice is to regress some measure of regulatory stringency on some measure of competitiveness and innovation across several industries and/or countries. However, possibly due to measurement problems, the results of these studies tend to be inconclusive and if any effects are found, these are usually rather small. Addressing the measurement problem, this paper uses highly disaggregated foreign trade data and data from a full survey of the Austrian paint, coatings, printing inks and adhesive industry to examine the impact of Austrian VOC emission standards on Austrian manufacturers of the regulated products. These standards are particularly interesting in that they are the most restrictive of their kind in the world and therefore an excellent case to study some of the issues raised by the 'Porter Hypothesis'. Based on various measures of RCA, I find no impact (i.e. neither negative nor positive) on competitiveness, which is also supported by the industry's own evaluation in the survey. I do find, however, that the regulations restricted imports. An important corollary of this finding is that the industry's current attempt to have the more restrictive Austrian regulation relaxed to the more lenient provisions of the European VOC directive may be counterproductive, since contrary to popular belief this may increase import competition rather than facilitate exports. Second, I consider various indicators of innovation based on evidence from the survey. I find that the regulation induced sizeable changes of firms' product range which vary by technological sub-segment. These changes are also reflected in a more dynamic technological environment. R&D spending to develop compliant products is found to be very unevenly distributed. While some firms spent virtually nothing, other firms devoted almost their complete R&D budget to compliance innovations. This result is mainly a function of technology and to a lesser extent of organisational factors. Moreover, there is evidence that the introduction of compliant products displaced or postponed existing R&D projects, again with substantial variations by technology. Finally, the survey produces evidence that compliance efforts yielded new ideas and allowed some firms to acquire new competencies and technologies, which they would not have acquired in the absence of the regulation. However, the latter finding is most probably due to technologically backward (small) firms catching up. To summarise, the survey evidence reveals considerable heterogeneity in how firms were affected and responded to the regulation. Partly, this is an expected result of a uniform command-and-control regulation, partly it indicates a differential ability of firms to adapt to an external shock. Although based on a very small sample, the paper points to interesting lines of enquiry that should be explored in future research.

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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa02p290.

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Date of creation: Aug 2002
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Handle: RePEc:wiw:wiwrsa:ersa02p290

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  1. Xepapadeas, Anastasios & de Zeeuw, Aart, 1999. "Environmental Policy and Competitiveness: The Porter Hypothesis and the Composition of Capital," Journal of Environmental Economics and Management, Elsevier, vol. 37(2), pages 165-182, March.
  2. Lanjouw, Jean Olson & Mody, Ashoka, 1996. "Innovation and the international diffusion of environmentally responsive technology," Research Policy, Elsevier, Elsevier, vol. 25(4), pages 549-571, June.
  3. Arik Levinson, 2001. "An Industry-Adjusted Index of State Environmental Compliance Costs," NBER Chapters, National Bureau of Economic Research, Inc, in: Behavioral and Distributional Effects of Environmental Policy, pages 131-158 National Bureau of Economic Research, Inc.
  4. Adam B. Jaffe & Karen Palmer, 1996. "Environmental Regulation and Innovation: A Panel Data Study," NBER Working Papers 5545, National Bureau of Economic Research, Inc.
  5. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 119-132, Fall.
  6. Carlo Carraro & Gilbert E. Metcalf, 2000. "Behavioral and Distributional Effects of Environmental Policy Introduction," NBER Working Papers 7648, National Bureau of Economic Research, Inc.
  7. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(1), pages 132-163, March.
  8. Abay Mulatu & Raymond J.G.M. Florax & Cees A.A.M. Withagen, 2001. "Environmental Regulation and Competitiveness," Tinbergen Institute Discussion Papers, Tinbergen Institute 01-039/3, Tinbergen Institute.
  9. Xinpeng Xu, 2000. "International Trade and Environmental Regulation: Time Series Evidence and Cross Section Test," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 17(3), pages 233-257, November.
  10. William Harbaugh & Arik Levinson & David Wilson, 2000. "Reexamining the Empirical Evidence for an Environmental Kuznets Curve," NBER Working Papers 7711, National Bureau of Economic Research, Inc.
  11. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
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Cited by:
  1. Hottenrott, Hanna & Rexhäuser, Sascha, 2013. "Policy-Induced Environmental Technology and Inventive Efforts: Is There a Crowding Out?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79791, Verein für Socialpolitik / German Economic Association.
  2. Ben Kriechel & Thomas Ziesemer, 2009. "The environmental Porter hypothesis: theory, evidence, and a model of timing of adoption," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(3), pages 267-294.
  3. Kneller, Richard & Manderson, Edward, 2012. "Environmental regulations and innovation activity in UK manufacturing industries," Resource and Energy Economics, Elsevier, Elsevier, vol. 34(2), pages 211-235.
  4. Popp, David & Newell, Richard, 2012. "Where does energy R&D come from? Examining crowding out from energy R&D," Energy Economics, Elsevier, Elsevier, vol. 34(4), pages 980-991.
  5. David Popp & Richard G. Newell, 2009. "Where Does Energy R&D Come From? Examining Crowding Out from Environmentally-Friendly R&D," NBER Working Papers 15423, National Bureau of Economic Research, Inc.

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