Abstract
This paper investigates the impacts of environmental regulations on technological innovation using a unique data set of Japanese firm-level environmental R & D expenditure. First, from descriptive statistics, we find that environmental R & D increased from 1991 to 2001. The two sources of the expansion are confirmed: 1) more firms investing in environmental R & D and 2) increase in the average environmental R & D expenditure per firm. Second, we empirically test the "weak version" of the Porter Hypothesis, defined by Jaffe and Palmer (1997). We find that environmental regulation, measured by environmental conservation investment, increases the probability of investing in general R & D and environmental R & D. In contrast, the expenditures of R & D and environmental R & D, standardized by sales, are not found to be affected by environmental regulations. The stringent environmental regulation, however, increases the ratio of environmental R & D to general R & D expenditures. Thus, we find a supporting evidence of the "weak version" of the Porter Hypothesis.
