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Environmental and Resource Economics

, Volume 70, Issue 2, pp 429–455 | Cite as

Environmental Regulation and Sustainable Competitiveness: Evaluating the Role of Firm-Level Green Investments in the Context of the Porter Hypothesis

  • Jana StoeverEmail author
  • John P. Weche
Article

Abstract

We investigate the impact of environmental regulation on firm performance and investment behavior. Exploiting the case of a German water withdrawal regulation that is managed on the state level, we analyze firms’ reactions to an increase in the water tax using a regression-adjusted difference-in-differences approach. We analyze the individual firm’s response to a change in environmental regulation, distinguishing between add-on and integrated environmental investments. This allows us to include innovation diffusion into our analysis, which is likely to be of importance for increasing resource-efficiency. Our results show that the regulation in question shows no sign of affecting firms’ overall competitiveness. The results imply that the predicted negative impact of the regulation on firms’ economic performance that was brought up before the introduction of the tax, does not seem to weigh heavily in this case. Nevertheless, when placed into a sustainable competitiveness context, the regulation considered does not qualify as an appropriate policy tool for fostering green growth.

Keywords

Environmental regulation DID Green growth Green investment Porter hypothesis Sustainable competitiveness Water withdrawal regulation 

JEL Classification

L60 O31 O32 Q58 Q55 

Notes

Acknowledgements

The authors would like to thank Joachim Wagner, Uwe Rentmeister, Klaus Thoms, Wolfgang Ast, Sarah Weche and staff of the Research Data Center Berlin-Brandenburg for processing the do-files and ensuring no violation of secrecy. Jana Stoever was supported by the Kompetenzzentrum Nachhaltige Universität at Hamburg University. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and should not be attributed in any manner to their employers or affiliations.

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Hamburg Institute of International EconomicsHamburgGermany
  2. 2.Hamburg UniversityHamburgGermany
  3. 3.Monopolies CommissionBonnGermany
  4. 4.Leuphana University LüneburgLüneburgGermany

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