Productivity growth, environmental regulation and win-win opportunities: The case of chemical industry in Italy and Germany

This paper analyzes the environmental and economic efficiency of a sample of firms located in Italy and Germany, operating in the chemical sector and included in the European Pollution Release and Transfer Register (E-PRTR). The Directional Distance Function (DDF) approach in a conditional setting has been applied to obtain efficiency score and Total Factor Productivity (TFP) growth indexes considering pollution in computations. Emissions increase in absolute term between 2004 and 2007, with a worse performance of Italian firms, but efficiency indicators show a reduction of inefficiency over time, with similar performance of firms from the two countries. The formal test for the Porter's hypothesis suggests that chemical firms suffering higher compliance costs in the first period react with investment increasing productivity in the following years. The empirical evidence, robust to different specifications and estimation methods, supports the presence of win-win opportunities.