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Environmental Policy and Technological Innovation: Evidence from Taiwan Manufacturing Industries

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  • Tsai, Diana

Abstract

Michael Porter suggested that the traditional trade-off between environmental regulation and competitiveness may have overestimated environmental compliance costs, neglected innovation offsets, and disregarded the affected industry's initial competitiveness. We examine the stylized facts regarding environmental abatement investments and innovation in various industries. This paper examines the role of market innovation and the incurred necessary adjustments in explaining the apparent contradiction between markets and the environment. It argues that market innovation can serve as a powerful tool of environmental policy operating together with a competitive market environment. To capture the market innovation and the incurred adjustments for enterprises in complying with the environmental standard requires a model with dynamic adjustment features. This paper applies an empirical industry dynamic model to explicitly incorporate associated adjustments in analyzing the efficiency of the abatement investment by industry. By investigating abatement investments in various industries, we analyze the innovation and adjustment effects of environmental policy. We apply the empirical industry dynamic model to Taiwan manufacturing industries and investigate how well the double-focus of industry efficiency and environmental perpetual development has been developed in the process of industrialization. The Taiwan manufacturing industries were chosen since it has been characterized by increasing innovation and investment in R&D, especially the rapid innovation in electronics, computers, materials, and processes which had marked as the source of the substantial growth before Asia financial crisis. The industries with higher innovation spillover effects and lower adjustment effects are identified to effectively enhance optimal policy in aiming at both economic efficiency and environmental perpetual development for Taiwan's balanced growth.

Suggested Citation

  • Tsai, Diana, 2002. "Environmental Policy and Technological Innovation: Evidence from Taiwan Manufacturing Industries," Conference papers 331005, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331005
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