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Testing the Porter hypothesis: the effects of environmental investments on efficiency in Swedish industry

Author

Listed:
  • Thomas Broberg
  • Per-Olov Marklund
  • Eva Samakovlis
  • Henrik Hammar

Abstract

The main objective of this paper is to test the Porter hypothesis by assessing static and dynamic effects of environmental policy on productivity. According to the hypothesis, stringent environmental regulations have dynamic effects on firm performance, and these effects eventually generate profits that offset the adaptation costs. We extend previous analyses by using unique data on environmental protection investments in the Swedish manufacturing industry as a proxy for environmental stringency. These data enable us to separate environmental protection investments into pollution prevention and pollution control. This distinction is crucial since the hypothesis claims that it is investments in prevention that have positive dynamic effects on firm performance. To test the hypothesis, a stochastic production frontier model is estimated where firm inefficiency is a function of investments in environmental protection. In general, we find no support for the Porter hypothesis within the time frame of our study, indicating that environmental regulations lead to efficiency losses. This result is even stronger in the harshly regulated pulp and paper industry. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Thomas Broberg & Per-Olov Marklund & Eva Samakovlis & Henrik Hammar, 2013. "Testing the Porter hypothesis: the effects of environmental investments on efficiency in Swedish industry," Journal of Productivity Analysis, Springer, vol. 40(1), pages 43-56, August.
    • Handle: RePEc:kap:jproda:v:40:y:2013:i:1:p:43-56
    DOI: 10.1007/s11123-012-0335-6
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    References listed on IDEAS

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    1. Brännlund, Runar & Lundgren, Tommy, 2009. "Environmental policy without costs? A review of the Porter hypothesis," Umeå Economic Studies 766, Umeå University, Department of Economics.
    2. Paul Lanoie & Michel Patry & Richard Lajeunesse, 2008. "Environmental regulation and productivity: testing the porter hypothesis," Journal of Productivity Analysis, Springer, vol. 30(2), pages 121-128, October.
    3. Brännlund, Runar & Lundgren, Tommy, 2008. "Environmental policy and profitability - Evidence from Swedish industry," Umeå Economic Studies 750, Umeå University, Department of Economics.
    4. Ronald Shadbegian & Wayne Gray, 2006. "Assessing multi-dimensional performance: environmental and economic outcomes," Journal of Productivity Analysis, Springer, vol. 26(3), pages 213-234, December.
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    6. Shunsuke Managi & SJames J. Opaluch & Di Jin & Thomas A. Grigalunas, 2005. "Environmental Regulations and Technological Change in the Offshore Oil and Gas Industry," Land Economics, University of Wisconsin Press, vol. 81(2).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Environmental protection investments; Industry efficiency; Porter hypothesis; Stochastic production frontier; C61; D21; D24; Q50; Q58;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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