The Stringency of Environmental Regulations and Technological Change: A Specific Test of the Porter Hypothesis

Trade creates wealth through economic growth, and increased levelof income effects environment in different ways. firstly, whenpeople become wealthier, their demand for environmental protectionwill increase because their priorities will change from employment,income, food or housing to more qualitative measures such as cleanerenvironment. through increased level of income, trade can save peoplefrom the poverty versus environmental degradation circle which forcesthe poor people to exploit the environment in order to survive. secondly,with rising level of national income, the governments and/or privatefirms could increase the expenditures targeting environmentaldevelopment. these changes resulting from wealth increase may alsoimprove environmental rules and regulations. dsually the goal ofenvironmental policies is to protect the environment by imposingrestrictions on firms and/or consumers. these policies are oftencriticised as it is claimed that the international competitiveness ofdomestic firms is reduced. however, in contrast to this cost biasedargument michael porter formulated the hypothesis that environmentalpolicies could also serve as a vehicle to enhance the competitiveness.however, michael porter formulated the hypothesis that saysenvironmental policy spurs innovation which makes firms better off inthe long run, since it increases their competitiveness (porter (1991),porter and van der linde (1995)). the aim of this paper is test for thevalidity of the porter hypothesis and trade liberalisation effect onenvironment in the ed, the persian gulf and in north-south countriesregions. our results confirm the porter hypothesis in these regions. also,trade liberalisation increases the c02 emission per capita in the persiangulf, ed and north-south countries regions