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

Listed author(s):
  • Roediger-Schluga, Thomas


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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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
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. William T. Harbaugh & Arik Levinson & David Molloy Wilson, 2002. "Reexamining The Empirical Evidence For An Environmental Kuznets Curve," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 541-551, August.
  3. Abay Mulatu & Raymond J.G.M. Florax & Cees A.A.M. Withagen, 2001. "Environmental Regulation and Competitiveness," Tinbergen Institute Discussion Papers 01-039/3, Tinbergen Institute.
  4. Arik Levinson, 2001. "An Industry-Adjusted Index of State Environmental Compliance Costs," NBER Chapters,in: Behavioral and Distributional Effects of Environmental Policy, pages 131-158 National Bureau of Economic Research, Inc.
  5. Lanjouw, Jean Olson & Mody, Ashoka, 1996. "Innovation and the international diffusion of environmentally responsive technology," Research Policy, Elsevier, vol. 25(4), pages 549-571, June.
  6. 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, vol. 9(4), pages 119-132, Fall.
  7. Adam B. Jaffe & Karen Palmer, 1997. "Environmental Regulation And Innovation: A Panel Data Study," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 610-619, November.
  8. Carlo Carraro & Gilbert E. Metcalf, 2000. "Behavioral and Distributional Effects of Environmental Policy: Introduction," Discussion Papers Series, Department of Economics, Tufts University 0011, Department of Economics, Tufts University.
  9. 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, vol. 33(1), pages 132-163, March.
  10. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
  11. Xinpeng Xu, 2000. "International Trade and Environmental Regulation: Time Series Evidence and Cross Section Test," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 233-257, November.
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