Unmasking the Porter hypothesis: Environmental innovations and firm-profitability

Sascha Rexhäuser () and Christian Rammer

No 11-036, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We examine impacts of different types of environmental innovations on firm profits. Following Porter's (1991) hypothesis that environmental regulation can improve firms' competitiveness we distinguish regulation induced and voluntary environmental innovations. We find that innovations which reduce environmental externalities reduce firms' profits, as long as they are induced by regulations. However, innovation that increases a firm's material or energy efficiency in terms of material or energy consumption has a positive impact on profitability. This positive result holds both for regulation induced and voluntary innovations, although the effect is significantly larger for regulation-driven innovation.We conclude that the Porter hypothesis does not hold in general for its 'strong' version but has to be qualified by the type of environmental innovation. Our finding rest on firm level data from the German part of the Community Innovation Survey in 2009.

Keywords: Environmental innovation; environmental regulation; Porter hypothesis; competitiveness (search for similar items in EconPapers)
JEL-codes: Q55 Q58 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:11036

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