The Macroeconomic Impact of the Porter Hypothesis: Sustainability and Environmental Policies in a Post-Keynesian Model

Abstract

The aim of the paper is to propose a post-Keynesian analysis of the Porter Hypothesis (PH) according to which regulation policies can bring about new economic opportunities by generating ‘green’ environmental innovations. Firstly, I illustrate the main features of the PH. Secondly, a Post-Keynesian growth model is developed by focusing on the macroeconomic impact of the PH. Finally, two equations of the model are estimated, an investment function and a green productivity function, by applying the GMM for panel data to European countries, over the period 1999–2012. The theoretical findings concern the potential rebound effect of regulation if its multiplier effect is greater than its innovation effect and the need for a policy mix to achieve environmental and socio-economic goals together. The empirical section verifies both the weak version of the PH, according to which environmental policies can stimulate green productivity, and (indirectly) the strong version of the PH by estimating the positive impact of green productivity dynamics on private investment.