This study investigates the impact of market-based environmental regulations on industrial performance and innovation across 48 countries (30 developed, 18 developing) from 1995 to 2021. Using environmental taxes, instrumented by lagged CO₂ emissions and women’s political empowerment, and public environmental expenditures as a robustness check. The results reveal heterogeneous effects across development levels. Environmental taxes increase productivity and R&D investment in developed economies but have limited impact in developing ones. Public environmental expenditures reduce productivity in both groups while affecting innovation differently. These findings suggest that environmental regulation can promote competitiveness and innovation, but its effectiveness depends on national economic and institutional conditions.
Mansouri et al. (Fri,) studied this question.
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