Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/333447 
Year of Publication: 
2025
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 22 [Issue:] 3 [Year:] 2025 [Pages:] 454-479
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
A substantial amount of literature investigates environmental regulations and their effect on competitiveness. This often leads to a comparison of the two competing hypotheses: the pollution haven hypothesis and the Porter hypothesis. The later suggests that environmental regulations can positively affect country level competitiveness through green research and development, while the former proposes that environmental regulations negatively affect competitiveness through higher production costs. In this paper, we argue that the comparison between these two hypotheses should not only be limited to competitiveness alone but should also include a focus on carbon leakage. We use a two-area stock-flow consistent macroeconomic model calibrated to match key variables for the Danish economy. We incorporate the effects of both the pollution haven and Porter hypotheses within the model. As an environmental regulation is implemented in the Danish economy, we find an immediate negative effect on competitiveness, but as the innovational process is allowed time to play in, as suggested by the Porter hypothesis, the effect on competitiveness turns positive. Furthermore, we find negative carbon leakage rates when the effects of the Porter hypothesis are included together with the pollution haven hypothesis, contradicting the quite large positive estimates found for small open economies in the current literature. We find that the negative carbon leakage rates are a result of including the empirically validated effects of the Porter hypothesis, which are excluded in the current literature.
Subjects: 
stock-flow consistent modeling
carbon leakage rates
competitiveness
JEL: 
F18
Q56
E12
E01
O33
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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