Abstract
Environmental issues have become of prime importance nowadays
so that they are a recurrent subject at the table of the world's most powerful
committees. Hence, the relationship between environmental regulation,
eco-innovation and firms' competitiveness has always been equivocal. The
concerned groups of interest all claim to have the right argument without a
clear analytical proof. The present thesis will shed some light on one of the
most controversial hypothesis in the last couple of decades: the Porter
Hypothesis. In fact, Harvard Business School Professor Michael E. Porter wrote
a one page article in the beginning of 1990s claiming, against the current
trend in that time, that environmental regulation will actually trigger
eco-innovation (weak Porter hypothesis) which will in turn increase the
competitiveness of businesses (strong Porter hypothesis). Needless to say this
argument has been immediately captured by politician and environmentalists to
support stringent environmental regulation. At the same time several
counter-articles were published to refute the Porter Hypothesis claiming
metaphorically that there is no 10 dollars bill on the ground because if it was
there it would have been already picked up, referring to the idea that
businesses would not miss an opportunity to improve their competitiveness on
the basis of profit maximising paradigm. The current thesis will limit itself
to the empirical test of the strong Porter Hypothesis explaining the
relationship between eco-innovation and firms' competitiveness using Mannheim
Innovation Panel (MIP) part of the European Community Innovation Survey. The
Ordered Probit Model will test six different hypotheses to compare between
eco-innovative and non-innovative firms concerning the impact of each of access
to green market, environmentally friendly products differentiation,
eco-innovation technological rent, materials and energy efficiency, cost of
capital and labour productivity variables on the return on sales as an index of
competitiveness. The thesis is structured as follow: After the introduction,
section 2 will briefly define eco-innovation and its drivers and expose more
extensively a literature review on the Porter hypothesis, section 3 will setup
the theoretical foundations for each of the six hypotheses, while section 4 and
5 will describe and test the empirical model respectively. The empirical
results confirmed only partly the strong Porter hypothesis with an overall
positive effect of environmental innovation on return on sales whereas from the
six different sub-hypotheses only four were verified leading to a rejection of
the remaining ones, namely the green products differentiation and patent
stock.
Keywords
Eco-innovation
Porter hypothesis Competitiveness Environment
Ordered Probit Model
Table of Contents
Statutory Declaration ii
Abstract iii
Keywords iv
List of Tables vii
List of Figures viii
List of Abbreviations ix
1 Introduction 1
2 Literature review of the academic background
4
2.1 Introduction 4
2.2 Eco-innovation 4
2.2.1 Definition 4
2.2.2 Determinant for eco-innovation 5
2.3 The Porter hypothesis 6
2.3.1 The weak Porter hypothesis 7
2.3.2 The strong Porter Hypothesis 8
2.3.3 Critics of the Porter hypothesis 12
2.4 Conclusion 14
3 Hypotheses of the theoretical model 16
3.1 Better access to markets 16
3.2 Product differentiation 16
3.3 Technological rent 17
3.4 Cost of materials and energy 18
3.5 Cost of capital 18
3.6 Cost of labour 19
4 Empirical setting 21
4.1 Data description 21
4.2 Variable definitions 22
5 Empirical estimation 26
5.1 Estimation model 26
5.2 Empirical results 27
5.3 Model discussion 27
6 Conclusion 29
Bibliography 31
ANNEX I 35
ANNEX II 38
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