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Three Essays on the Economics of Innovation Open Access


Other title
environmental regulation
import competition
Porter Hypothesis
Type of item
Degree grantor
University of Alberta
Author or creator
Tang, Ruotao
Supervisor and department
Klumpp, Tilman (Economics)
Examining committee member and department
Su, Xuejuan (Economics)
Liu, Runjuan (Marketing, Business Economics, and Law)
Langinier, Corinne (Economics)
Missios Paul (Economics, Ryerson University)
Department of Economics
Environmental and Natural Resource Economics
Date accepted
Graduation date
2016-06:Fall 2016
Doctor of Philosophy
Degree level
This study examines innovative activities of firms under environmental regulation and import competition. In particular, the first and the second chapters discuss the Porter Hypothesis, which suggests a positive link between stringent environmental regulation and firm innovation, from a theoretical and empirical perspective. The third chapter empirically investigates how import competition from low-wage countries affects firm innovation. The first chapter compares equilibria in a duopoly with substitute goods, and obtains results consistent with predictions of the Porter Hypothesis. In this chapter I show that a binding minimum environmental quality standard can promote process innovation (i.e., cost reductions) and product innovation (i.e., increased environmental quality), and increase output and profits of both firms. This happens when between-firm spillovers in process innovation are sufficiently strong. The regulation can further raise consumer surplus and alleviate pollution, when environmental damage from production is mild and the marginal cost of process innovation exceeds a certain threshold. I demonstrate that these results are robust against changes in model specifications. Thus, a key finding of this paper is that environmental quality standards can benefit firms and consumers, by correcting not only for environmental externalities but also (as a by-product) for under-investment in process innovation. The second chapter provides empirical support for the Porter Hypothesis in the context of a developing economy. In this chapter, I study the impact of a unique environmental regulatory policy called mandatory participation in Cleaner Production Audit (CPA) programs on firm innovation in China from 2001 through 2010. Using firm-level patent and CPA program enrollment data, I employ a difference-in-differences approach to examine the effect of CPA participation on Chinese listed companies, since the program’s implementation in 2005. The analysis confirms that CPA participation enhanced firm innovation proxied by patent applications. I also find that this positive impact is stronger after substantial improvements were made to the program assessment framework in 2009, in eastern regions where stringent policy implementation was combined with diversified financial incentives, and for larger companies with the resources needed to adapt to regulatory pressure. These results are robust to a variety of model specifications including models based on propensity score matching results. The third chapter explores the impact of the surge in import competition from China on innovation in the U.S. manufacturing sector during the 1990–2001 period, using firm-level patent data. It finds evidence that Chinese import competition had a positive effect on U.S. innovation, as measured by patent applications weighted by citations. This positive effect persists when we use Chinese exports to the United Kingdom as an instrument, to address potential endogeneity. This chapter also finds that firms in less technologically advanced and less vertically differentiated industries, with high capital intensity and low labour productivity, have a greater incentive to innovate under import competition from China. These results are robust to a variety of measures for innovation and import penetration.
This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for the purpose of private, scholarly or scientific research. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
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