Effects of the reduction of pollution emissions on the economic performance of firms: an empirical analysis focusing on demand and productivity

This paper analyzes whether the reduction of pollution emissions improves a firm’s economic performance through the increase in sales to environmentally conscious customers and the cost reductions associated with the improvement in productivity. Because the selection of the control (end-of-pipe) or prevention (cleaner production) approach differently influences the effect through the improvement in productivity, this is also considered. Using panel data for Japanese manufacturing firms over the period 2002–2008, the findings indicate that firms that have reduced their pollution emissions can increase their economic performance through the increase in demand for their products and an improvement in productivity. However, the latter is conditional, and so the prevention approach is preferred.