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Spatial Development, Environmental Regulation and Productivity: The Porter Hypothesis Goes to China
1 : The Graduate Institute, Geneva
(IHEID)
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We examine the relationship between environmental regulation and competitiveness in China. Exploiting changes in national pollution standards for three industries—ammonia, paper and cement— we test whether environmental regulation increases industry productivity. Our results show that the strong version of the Porter hypothesis does not hold, but that regulation might reallocate productivity spatially. We show that regulated industries that are located in developing cities see an increase in their productivity as compared to the same industries in other cities. This means that environmental regulation is more likely to drive the spatial distribution of productivity changes than it is to drive the pace and direction of technological change.
