Journal
ECONOMIC ANALYSIS AND POLICY
Volume 79, Issue -, Pages 610-633Publisher
ELSEVIER
DOI: 10.1016/j.eap.2023.06.032
Keywords
Trade liberalization; Growth effect; Entry and exit; Pollution havens hypothesis; Heterogenous firm; Sustainable development
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The Porter hypothesis is not very statistically significant, especially in developing countries, because it overlooks environmental-policy-related bribes. Reducing the regulatory cost burden through bribes can encourage innovation. Moreover, firms are more likely to bribe officials in making export decisions in more competitive international markets. This study identifies the theoretical mechanism for this hypothesis by analyzing the effects of trade environmental policies and bribes associated with tax evasion on pollution, growth, and productivity in an R & D-based growth model.
The Porter hypothesis is not very statistically significant, especially in developing countries. This is likely because it overlooks environmental-policy-related bribes, and reducing the regulatory cost burden through bribes can encourage innovation. Moreover, the more competitive are the international markets, the more likely is it for firms to bribe officials in making export decisions. This study identifies a theoretical mechanism for this hypothesis by analyzing the effects of trade environmental policies and bribes associated with tax evasion on pollution, growth, and productivity in an R & D-based growth model considering exporting firms that engage in environmental tax evasion. The analysis yields a weak Porter hypothesis wherein an increase in environmental tax for exporting firms leads to economic growth and pollution reduction. Then, the greasing-the-wheel-of-trade and sanding-the-wheel-of-trade hypotheses are compatible. The different results of trade and environmental policies' effects on each developing country's green innovation are likely due to the political institutions' maturity.& COPY; 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
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