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Environmental Innovations and Firm Profitability: Unmasking the Porter Hypothesis

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  • Sascha Rexhäuser

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  • Christian Rammer

Abstract

We examine impacts of different types of environmental innovations on firm profits. Following Porter’s (Sci Am 264(4):168, 1991 ) hypothesis that environmental regulation can improve firms’ competitiveness, we distinguish between regulation-induced and voluntary environmental innovations. We find that innovations which do not improve firms’ resource efficiency do not provide positive returns to profitability. However, innovations that increase a firm’s resource efficiency in terms of material or energy consumption per unit of output have a positive impact on profitability. This positive result holds for both regulation-induced and voluntary innovations, although the effect is greater for regulation-driven innovation. We conclude that the Porter hypothesis does not hold in general for its “strong” version, but depends on the type of environmental innovation. Our findings rest on firm-level data from the German part of the Community Innovation Survey 2008 (CIS 2008). Copyright Springer Science+Business Media Dordrecht 2014

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  • Sascha Rexhäuser & Christian Rammer, 2014. "Environmental Innovations and Firm Profitability: Unmasking the Porter Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 145-167, January.
  • Handle: RePEc:kap:enreec:v:57:y:2014:i:1:p:145-167
    DOI: 10.1007/s10640-013-9671-x
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