Environmental regulations, induced R&D, and productivity: Evidence from Taiwan's manufacturing industries

This paper examines whether stringent environmental regulations induce more R&D and promote further productivity in Taiwan. Using an industry-level panel dataset for the 1997–2003 period, empirical results show that pollution abatement fees, a proxy for environmental regulations, is positively related to R&D expenditure, implying that stronger environment protection induces more R&D. On the other hand, pollution abatement capital expenditures do not have a statistically significant influence on R&D. Further evaluation of the influence of induced R&D by environment regulations on industrial productivity shows a significant positive association between them. This finding supports the Porter hypothesis that more stringent environmental regulations may enhance rather than lower industrial competitiveness.

► Whether stringent environmental regulations induce more R&D and promote productivity?
► We adopt a Taiwanese industry-level panel dataset for the 1997–2003 period.
► Pollution abatement fees are positively related to R&D, whereas PACE do not.
► Induced R&D by environment regulations shows a significant influence on productivity.
► Both pollution abatement fee and PACE have a directly positive impact on productivity.