This paper aims at exploring how the competiveness of the EU economy, here captured by the export dynamics over a fairly the medium run (1996-2007), has been affected by environmental regulation both on the public and private sector side, The strong and weak versions of the Porter hypothesis are tested by specifying the export dynamics of four aggregated manufacturing sectors classified by their technological content, estimated with a dynamic panel data estimator applied to a gravity model of international trade.
When testing the strong version on export performances of manufacturing sectors, the overall effect of environmental policies is not in conflict with exports competiveness. In some cases we observe positive relationships, in other negligible, and when negative they seem to be circumscribed to the very short run. When testing the weak version using export flows of environmental goods, environmental policies, public R&D expenditures as well as patenting activities, all foster competitive advantages of green exports. Public policies and private innovation patterns can trigger higher efficiency and higher value embodied in products, or in other words environmental-friendly process and product innovations can turn a perceived production cost into a net benefit, thus giving some useful advice for policy makers involved into the new wave of environmental tax reforms actually debated at the European Union level.