Dynamic activity analysis model-based win-win development forecasting under environment regulations in China

Shiyi Chen, Wolfgang K. Härdle

Abstract  Porter hypothesis states that environmental regulation may lead to win-win opportunities, that is , improve the productivity and reduce the undesirable output simultaneously. Based on directional distance function, this paper proposes a novel dynamic activity analysis model to forecast the possibilities of win-win development in Chinese industry between 2011 and 2050. The consistent bootstrap estimation procedures are also developed for statistical inference of the point forecasts. The evidence reveals that the appropriate energy-saving and emission-abating regulation will significantly result in both the net growth of potential output and the increasing growth of total factor productivity for most industrial sectors in a statistical sense. This favors Porter hypothesis.