Research database

The increasing attention to climate change brings sustainability high on the agenda of governments and international institutions. Public policies are increasingly regulating the use of polluting substances, the production of hazardous waste, emissions, deforestation, and the protection of animal stocks. The EU Green New Deal and the recent Piano Nazionale di Ripresa e Resilienza (PNRR) are good examples of how the EU and national governments try to force firms in the direction of increasing sustainability of the production process. However, these are only the most recent measures of a longer-term process of stimulation towards the so-called green transition. One of the key hindrances toward a green transformation is the alleged trade-off between growing versus greening the economy (Brandi et al 2020). Indeed, environmental provisions impose compliance costs on domestic firms, causing a restructuring of firms’ sourcing strategies and technologies. If the costs of reorganizing production become too high, they may offset part of the benefits. Moreover, large asymmetries in the stringency of environmental policies across countries may drive firms to offshore their production toward countries or regions with less stringent regulation, defined as “pollution havens” (Levinson and Taylor, 2008), through import or by directly moving some production phases via outward foreign direct investment (FDI). On a more positive side, Porter and van der Linde (1995) argue that stricter environmental policies can stimulate efficiency improvements and innovations in greener technologies that turn out to increase domestic firms’ competitiveness or induce a greening of the production outcomes. This project positions within the lively debate on whether environmental policies drive more costs or more benefits, i.e. ultimately between the prevalence of the “pollution haven” (PHH) vs. the “Porter” hypothesis (PH), focusing on the Italian context, with an empirical approach. We leverage detailed firm-level data on import, export, and FDI of Italian firms, and the quasi-experimental setting introduced by a major policy change in environmental protection, i.e., the REACH regulation, one of the most relevant and impacting regulations for the physical production of goods in the EU. Specifically, we intend to exploit, with a diff-in-diff approach, the shock introduced by the REACH regulation to the imports of Italian firms to study how this affected their costs, production technology, offshoring decisions, and the sustainability of their international trade flows. An immediate outcome of the project is expected to be an impact evaluation of the environmental policy per se. More broadly, we expect to shed light on the potential threat and opportunities of environmental policies for Italian firms, as well as on internal and external factors their reaction to the regulatory context.