Nonlinear affect in Competitiveness and Firm Innovation by Environmental Policy Stringency; testing the Porter's Hypothesis

One of the most prominent hypothesis in environmental economics is the Porter hypothesis. The Porter hypothesis argues that more stringent environmental policies can actually have a net positive effect on the competitiveness of regulated firms because such policies promote cost-cutting efficiency improvements, which in turn reduce or completely offset regulatory costs, and foster innovation in new technologies that may help firms achieve international technological leadership and expand market share. Given the importance of this hypothesis to policymakers and firms, many studies have been conducted to prove or disprove this hypothesis.

in this study, we used panel smooth transition regression for 25 OECD members during 2000-2015.

the results indicated that the weighted indicator of environmental policy stringency in linear and nonlinear part of the model had positive and significant effects on increasing the number of selected environmental technologies. The coefficient of variation was estimated to be 0.142 in the linear part and 0.213 in the nonlinear part. The speed of transition between the two regimes of weighted growth index of environmental policies, according to the estimated transition parameter, is 3.17.

Analysis of results shows that when the weight index growth of environmental policies is low, the severity of the impact of independent and control variables on the number of selected environmental technologies will vary. Given the experience of developed countries, improving the state of the legal system and property rights, increasing official and state aid for environmental development, and increasing state funding for environmental research and development can play an effective role in improving competitiveness and enhancing enterprise innovation.