The Impact of Environmental Regulation on Firm and Country Competitiveness: A Meta-analysis of the Porter Hypothesis

Since the early 1990s, the validity of the Porter hypothesis has been the focus of intense research to establish whether well-designed environmental regulation may enhance—rather than reduce—competitiveness. However, little consensus exists on the extent to which environmental regulation might generate profitability enhancing innovation offsets. This paper reports on a meta-analysis of 103 publications that estimate the relationship between environmental regulation and firm- or country-level productivity or competitiveness. We find considerable heterogeneity in both the sign and significance level of over 2,000 estimated “effect sizes” in these studies. A positive effect of environmental regulation is more likely at the state, region, or country level, compared to facility, firm, or industry level—although in both cases the most likely scenario is statistical insignificance. These findings are consistent with the strong version of the Porter hypothesis whereby strict but flexible environmental regulations induce innovation and over time increase country-level competitiveness.