EFFECT OF ENVIRONMENTAL REGULATION ON FIRM COMPETIVENESS:A LITERATURE REVIEW

The effect of environmental regulation on the competitiveness of domestic enterprisecs is a crucial factor for the decision-making of environmental policies besides improving the environmental performance. According to the traditional hypothesis, environmental regulation will negatively affect the firm competitiveness since the regulation will induce the increase of production cost. On the opposite, Porter hypothesis assumes environmental regulation will promote the competitiveness of firm competitiveness on the conditions that the regulation should be based on the market mechanism and be considered within the dynamic circumstances. The firm competitiveness will be increased through the innovation offsets and first-mover advantages. Each hypothesis has its own supporters and combats with each other. The current research has moved out of the endless quarrel and mainly focuses on such issues with recognition of the existence of uncertainties faced by the firms. Within the recent research framework, the effect of environmental regulation on the firm competitiveness also depends on the conditions inside and outside the firm, the motives of the firm's environmental management and strategic interaction between the regulator and regulated firm. The article has reviewed and analysied the relevant literatures.