List of Tables
Dimensions of Environmental Innovation Distinguished in MIP 2009
...4
Variables definition 26
Probit Estimation 28
List of Figures
Spill-over effect of innovation 11
Schematic representation of the Porter hypothesis 12
List of Abbreviations
CIS Community Innovation Survey
ER Environmental Regulation
EU European Union
MIP Mannheim Innovation Panel
OECD Organisation for Economic Co-Operation and Development
PH Porter Hypothesis
R&D Research and Development
US United States of America
1 Introduction
Environmental issues are at the core of most of the economic
and political debates nowadays. The problem is so important that it has become
a recurrent subject of most of the world's top level committees such as the G8.
The current economic context has also brought to the table the discussion about
the competitiveness of the developed economies, with the businesses at their
core, and how governments may revive the comparative advantage of their
countries through well-designed regulation. All in all, one can notice that all
of these three aspects are linked one another in a certain way. Intuitively,
the starting point would be that the governments would intervene via the
regulation in order to reduce the environmental externalities, but the matter
of businesses' competitiveness is not less of importance in the point of view
of politicians seeking democratic legitimacy. Moreover, the classical economic
mind-set of the market economies is that the government shall not intervene in
the private economic field unless the intervention is justified by a market
failure or for redistributional purpose. Interestingly enough, Professor
Michael E. Porter came, at the beginning of the 1990s, with a revolutionary
idea defying all preconceptions: `Environmental regulation will trigger
innovation and thus increase the competitiveness of businesses.' The idea was
absolutely astonishing for economists at that time and the politicians took
immediately this hypothesis as a chief argument to support more Environmental
Regulation (ER). Porter argued that even if the impact of stringent ER might be
«challenging for the national industry at the very beginning», the
long run result would be an enhanced competitive position at the global level
for innovative business developing new environmental technologies to improve
their products and processes (Blind, 2011). The Porter Hypothesis quickly
became a counterhypothesis to the existing paradigm which stipulates the ER
will necessarily impact negatively the business competitiveness as it bound the
innovative projects of the firms to a limited scope of activities, in this case
environmental issues, and thus, will only lead to supplementary costs.
Consequently, during the last two decades a vivid debate has
been raised opposing the two different perspectives. On one hand, the
ground-breaking view correlating ER is with enhanced competitiveness rather
than the traditional view of an adverse effect as a result of additional costs
imposed to the businesses, on the other hand. Many managers and analysts have
begun to convey the idea that it is imperative for companies to financially
care about the environment (Lanoie and Laplante, 1992), either to protect their
reputation or improve their access to capital markets. Beyond these indirect
effects, a growing number of examples
started to show that certain activities related to
environmental management can have a direct positive effect on the financial
situation of companies. In other words, some activities may be cost effective
and bring a "green return" while helping to protect the environment at the same
time.
In light of the preceding arguments, the objective of this
thesis is as simple as humble. Instead of analysing the Porter hypothesis as a
whole, the investigation will be limited only to the second part of the effect.
To put it differently, the hypothesis will be dismantled into two chains: the
first one is how ER may trigger eco-innovation and the second one is how
eco-innovation may improve firms' competitiveness. In this context, the main
problematic of current thesis will be:
Does eco-innovation impact positively the firms'
competitiveness?
To investigate this central problematic, several sub-questions
will be tackled in order to better understand how eco-innovative firms may
outperformer their non-innovative competitors. The following sub-questions will
be then addressed:
Do eco-innovative firms have access to more markets than their
competitors?
Does green product differentiation explain a higher return for
firms investing in ecoinnovation?
Do they benefit from innovation by trading their new technologies
in the environmental innovation market?
Is the cost efficiency for materials and energy at the origin of
their competitive advantage? Do they have access to lower capital cost?
Do they enjoy a higher labour productivity?
As an a priori answer to the central questions, the following
general hypothesis will be formulated:
Eco-innovation does have a positive return on the competitiveness
of the companies. Following the same logic, the six sub-hypothesis are:
Eco-innovative firms have access to green markets compared to
their competitors. By differentiating their green products firms may apply a
higher mark-up.
The patent stock of green technologies represents a rent for
eco-innovative firms. Product and process eco-innovation diminish wasted inputs
and increase efficiency. Shareholders value the environmental implication of
the firms.
Thanks to a better commitment of the employees to the company's
value, the eco-innovative firm's labour-productivity is higher than its
competitors, ceteris paribus.
The methodology used to explore this subject is descriptive
and analytical with a literature review of some of the most important empirical
and academic works in the field. The test of the PH will be conducted via an
empirical model based on innovation data of German companies from the Mannheim
Innovation Panel, with an ordinal limited dependant variable model, more
precisely an Ordered Probit Model ideal for data collected via
surveys.1
Following the present introduction, section 2 will, after a
brief definition eco-innovation and its determinants, summarise the results of
some key empirical paper written by economic academia to either confirm or
refute the PH. Section 3 will setup the theoretical foundations for each of the
six hypotheses. Section 4 will present the dataset and define the variables
used for the empirical model. In section 5, the steps of the model building
will be exposed together with the empirical results and their discussion.
Finally, the conclusion will comprise a summary recalling the main results of
the thesis.
1 In this context I would like to thank very much
my academic supervisor Professor Klaus Rennings and my analytical supervisor
Professor Christian Rammer for all their valuable advice, their helpful
assistance and especially for giving me the opportunity to visit the ZEW and
have access to the Mannheim Innovation Panel (2009) without which the current
thesis could not have been conducted. Not to mention Professor Eric De Souza
for his econometric assistance and his availability.
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