Eco-innovation and exports in heterogeneous firms: pollution haven effect and Porter hypothesis as competing theories

The effects of environmental policies on eco-innovation and trade performance are studied separately in the literature, and varying inferences across the studies are reported. This paper sheds light on this debate as it theoretically and empirically studies the pollution haven effect and strong Porter hypothesis in a unified framework that accounts for productivity and size heterogeneity at the firm level. The present study discusses a detailed analysis of theoretical predictions and empirical outcomes, based on the regulation-innovation-trade nexus, to assess the specific channels through which such effects might operate. Based on German and East European cross-sectional data at the firm level, results show that an eco-innovation that a regulation induces can generate either a positive effect or a detrimental effect on exporting propensity. Results also suggest that productivity, size and geographical heterogeneity of firms are extremely relevant.