Does competition prevent industrial pollution? Evidence from a panel threshold model

Abstract

The objective of this paper is to assess the impact of competition on industrial toxic pollution by using, for the first time, a panel threshold model which allows evaluations of the main drivers of toxic releases under two different market regimes. The empirical analysis is based on a micro‐level panel dataset over the five‐year period 1987–2012. We show that this relationship is statistically significant and robust above and below the threshold, even after accounting for alternative specifications of market concentration. Specifically, we unmask an inverted V‐shaped relationship between market concentration and industrial pollution. We argue that the increasing non‐parametric regression line up to a certain concentration (threshold) level indicates a negative effect on facilities' emissions levels, whereas a decreasing line indicates a positive effect. This relationship provides new insights into environmental policy design towards abatement of industrial releases and sustainability. Finally, our empirical model remains robust under different specifications properly accounted for possible endogeneity.