Ratio Working Papers,
The Ratio Institute

Abstract: Using a unique plant-level dataset we examine green productivity growth in Sweden’s heavily regulated pulp and paper industry, which has historically been a significant contributor to air and water pollution. Our exercise is interesting as Sweden has a unique regulatory structure where plants have to comply with national environmental regulatory standards and enforcement, along with decentralised plant-specific regulations. In our analysis, we use the sequential Malmquist-Luenberger productivity index which accounts for air and water pollutants as undesirable outputs. Some of our key findings are: (1) regulation has stimulated technical change related to pollution control, and has induced plants to catch up with the best-practice technology frontier with regard to effluent abatement; (2) large plants are more heavily regulated than small plants; (3) plants in environmentally less sensitive areas or those with local importance as employer face relatively lenient regulatory constraints; (4) environmental regulations trigger localized knowledge spillovers between nearby plants, boosting their green TFP growth.

Keywords: TFP; DEA; Sequential Malmquist-Luenberger productivity index; pulp and paper industry; pollution; environmental regulations; enforcement; plant-specific regulation; productivity; Porter hypothesis.

JEL-codes: D24; L51; L60; Q52; Q53; Q58

49 pages, April 24, 2014

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