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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Empirical Evidence on the Effects of Environmental Policy Stringency on Productivity Growth
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- Silvia Albrizio1, Tomasz Koźluk1, Vera Zipperer1, 2
- Author Affiliations
- 1: OECD, France
- 2: DIW Berlin, Germany
- 04 Dec 2014
- Bibliographic information
This paper investigates the impact of changes in the stringency of environmental policies on productivity growth in OECD countries. Using a new environmental policy stringency (EPS) index, it estimates a reduced-form model of multi-factor productivity growth, where the effect of countries' environmental policies varies with pollution intensity of the industry and technological advancement. A multi-layer analysis provides insights at the aggregate economy, the industry and the firm level. At the aggregate economy level, a negative effect on productivity growth is found one year ahead of the policy change. This negative “announcement effect” is offset within three years after the implementation. At the industry level, a tightening of environmental policy is associated with a short-term increase in industry-level productivity growth, for the most technologically advanced country-industry pairs. This effect diminishes with the distance to the global productivity frontier, becoming insignificant at larger distances. At the firm level, only the technologically most advanced firms show a positive effect on productivity growth from a tightening of environmental policies, while a third of firms, the less productive ones, experience a productivity slowdown.
- multifactor productivity, environmental policy stringency, environmental regulations, environmental policies, Porter hypothesis
- JEL Classification:
- O44: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Environment and Growth
- O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence
- Q50: Agricultural and Natural Resource Economics ; Environmental and Ecological Economics / Environmental Economics / General
- Q58: Agricultural and Natural Resource Economics ; Environmental and Ecological Economics / Environmental Economics / Government Policy