Environmental Regulation and International Competitiveness: A Review of Literature and Some European Evidence
The impact of environmental regulation on competitiveness is a major issue of concern to policy makers. It has also been the subject of considerable academic debate in the last few years between those who see an inherent conflict between the protection of the environment and international competitiveness, and those who believe that environmental regulation can in fact improve economic performance. The efforts to clarify the linkages between environmental regulation and competitiveness are still rudimentary, and it has not been possible to determine conclusively which are the main variables which intervene in the relationship. The evidence presented in this paper illustrate that environmental regulation is only one of a number of factors which may have an impact on competitiveness and a full analysis would require a much more detail consideration of the impact of other factors. It is suggested that this reflects the differing impact which environmental regulation may have on economic performance under different circumstances. For instance at the firm level the impact on profitability may be different between large firms, which can take advantage of economies of scale in waste treatment, and small firms where large cost increases may result. Similarly at the industry level there is apparently no general relationship between environmental regulation and competitiveness. Some industries which have high pollution abatement costs appear to be losing competitiveness within the European Union, while others have been able to maintain or even gain competitiveness. The impact of environmental regulation on competitiveness may differ according to certain structural or market characteristics of the industries concerned.
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