Intra-Industry Trade, Environmental Policies, and Innovations: The Porter-Hypothesis Revisited
نویسندگان
چکیده
According to the Porter-Hypothesis (PH) stricter environmental regulations in one country may trigger innovations in that country, which may partially or more than fully offset the compliance costs of domestic firms, thus possibly improving their international competitiveness. This paper investigates whether conditions exist under which this Hypothesis is valid either in its weak form (partially offsetting costs) or in its strong form (more than full offsetting of costs) where firms’ profits are actually increased. A model of intra-industry trade based on the ideal variety approach is used to identify various effects which work in favor of the PH. It is shown that the strong version may hold if environmental regulations increase consumers’ willingness to pay for products of “green” firms or when economies of scope in R&D exist which increase the probability of success of a process innovation. JEL-Classification: Q2, F1
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