Revisiting the Porter hypothesis: an empirical analysis of Green innovation for the Netherlands

Abstract

Almost all empirical research that has attempted to assess the validity of the Porter hypothesis (PH) has started from reduced-form models, for example, single-equation models for estimating the contribution of environmental regulation to productivity. This paper follows a structural approach that allows testing what is known in the literature as the ‘weak’ and the ‘strong’ version of the PH. Our ‘Green Innovation’ model includes three types of eco-investments to explain differences in the incidence of two types of eco-innovation, which are allowed to affect labor productivity. We allow for complementarity between the two types of eco-innovations. Using a comprehensive panel of Dutch manufacturing firm-level data we estimate the relative importance of environmental regulations on eco-investment and eco-innovations. The results of our analysis show a strong corroboration of the weak and a nuanced corroboration of the strong version of the PH.