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The Porter Hypothesis at 20: The Effect of Environmental Regulation (ER)

on Productivity and Competitiveness

 Wayne Gray

Economics Department, Clark University

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Research Background

• Joint work with Ronald Shadbegian, EPA-NCEE• Plant-level datasets for manufacturing industries• U.S. Census Bureau data

– Inputs, output, productivity

– Pollution Abatement Costs and Expenditures survey

– Investment, age

• EPA data– Enforcement and compliance

– Emissions

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ER and Productivity in the 1970s

• <World Congress paper, 2010>• Pessimal (?) regulatory approach

– Prescriptive and inflexible

– Emphasis on end-of-pipe controls

– Uncertainty, new regulations

• Paper, oil, and steel industries• Negative impacts of ER on productivity• Worse for high R&D, high productivity plants

– Possibly more affected by inflexibility of regulations?

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Investment and Technology Choice

• <Journal of Industrial Economics, 1998>• Pulp and paper mills• Abatement capital investment “crowds out”

productive capital– May reflect capital budgeting at the plant level

– Possible offset - “abatement” capital also seems to contribute to output (unlike other abatement inputs)

• ER affects production technology choices– Stringent air regs -> don’t use air-polluting technology

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Heterogeneity or Causality?

• <Journal of Productivity Analysis, 2005>• Paper, oil, and steel industries• Stochastic frontier, both emissions and production• Higher abatement costs = less efficient on both• But, production and abatement efficiency

measures are positively correlated• Possible heterogeneity in management quality

– Better managers choose lower-cost abatement methods

– Better managers produce more efficiently and cleaner