The effects of environmental investments on the economic performance of industrial plants – Evidence from Finland

Abstract

Industrial plants that invest in environmental protection are larger and more productive, but do environmental protection investments also have a causal effect on their economic performance? This study proposes a novel econometric method to analyze the economic performance effects of environmental investments. Propensity score matching and difference-in-differences estimation on matched sample are used to investigate whether Finnish industrial plants that start investing in environmental protection out- or underperform otherwise similar plants. The empirical results show that plants that invest in environmental protection increase their turnover in comparison to control plants and that their labor productivity also increases. The economic gains are stronger when environmental protection investments are combined with environmental R&D, which implies complementarities between these activities.