Testing the Strong Porter Hypothesis in the European Automotive Sector: Environmental Policy Stringency, Innovation, and Competitiveness in Germany, France, and Italy

Details

Supervisors

Agrell, Per Joakim

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

enThis present thesis examines whether stricter environmental regulations stimulate innovation and enhance competitiveness in the European automotive industry, focusing on Germany, France, and Italy between 1996 and 2020. Building on the strong version of the Porter Hypothesis, the analysis explores whether environmental policy stringency leads to increased research and development (R&D) investment, and whether this innovation subsequently improves productivity, measured by total factor productivity (TFP). Using a fixed-effects panel regression with country and year specific controls, the study combines data from the OECD Environmental Policy Stringency Index and EU KLEMS. The results show weak and statistically insignificant relationships between policy stringency and innovation, as well as between innovation and productivity. Country-level differences reveal that Germany and France, despite higher R&D spending and stricter policies, did not experience measurable productivity gains, while Italy’s outcomes were comparatively less negative but still inconclusive. These findings align with existing literature questioning the validity of the strong Porter Hypothesis, suggesting that the link between regulation, innovation, and competitiveness is highly context-dependent and shaped by policy design and industrial structure. The thesis emphasizes the need for complementary strategies beyond regulatory pressure to achieve both environmental and competitiveness goals in the automotive sector.