Do environmental regulations hamper productivity growth? How accounting for improvements of firms' environmental performance can change the conclusion
Working paper
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http://hdl.handle.net/11250/180083Utgivelsesdato
2004Metadata
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- Discussion Papers [1002]
Sammendrag
Abstract:
Many economists maintain that environmental regulations hamper productivity growth. However,
recently, an opposing view has gained advocates. Indeed, it has been suggested that the empirically
detected inverse relationship between environmental regulations and productivity growth is an almost
inevitable consequence of the current methods used to measure productivity – methods that fail to
account for improvements in environmental performance. We apply a method that amends this
methodological shortcoming of previous empirical studies, and perform a regression analysis of
regulatory stringency and a measure of productivity growth that accounts for emission reductions. To
credit a firm for emission reductions, we include emissions as inputs when calculating the Malmquist
productivity index (EMI); and for the sake of comparison, we also calculate the traditional Malmquist
productivity index (MI) where emissions are not included. The regression analysis shows that the
sign of the relationship is positive when EMI is employed as measure of productivity growth; but not
statistically different from zero when MI is applied. Hence, the present paper provides the first
empirical support for the claim that evaluations or recommendations of environmental policies that
are based on a traditional measure of total factor productivity can be biased.