Environmental Regulation and Direction of technological change

In a resource-constrained world, environmental regulation is more likely to steer the direction of technological change than simply increasing green innovation. Nonetheless, studies on the Porter hypothesis have often omitted the impact of environmental policy on “not-green” technologies. To this end, the paper empirically assesses the consequences of increasingly stringent regulation on both green and “grey” innovation. The estimations suggest that different types of regulatory instruments have distinct influences on the direction of technological efforts but reveal also the presence of path dependency. Market and non-market instruments are found to play a complementary role in this regard. The empirical analysis in a panel setting of the dynamic efficiency of diverse types of regulations is an additional novelty of this paper.