ENTERPRISE ENVIRONMENTAL INVESTMENTS AND PRODUCTIVITY GROWTH - EVIDENCE FOR LITHUANIA INDUSTRY SECTORS.

Enterprise investment in environment protection means traditionally are seen as a burden induced by environmental policy. It is claimed that these investments do not support increase in output and productivity and rise production costs. Environmental investments directed to reduce abatement cost may not produce the productivity growth effect if the productivity gain do not outweigh the increase in abatement cost. Though environmental investments of firms are seen as less productive allocations, strong version of the Porter Hypothesis implies that investments to production process innovation, induced by environmental policy requirements, might lead to extra profits, which can exceed the cost of investment. Enterprise' investment to innovations related to environment protection, targeted to the production processes, technologies, activities and product design are likely to improve profitability and competitiveness of the firm due to the production cost savings and product improvements. Empirical evidence on the effect of environmental investments on productivity is inconclusive. This paper investigates the effect of enterprise' environmental investments on industry level productivity growth. Cobb-Douglas production function framework was extended to allow for effects of environmental investments. The endogenous growth approach of production function is augmented with variables of investment to environment protection remedies and investment to production process improvement, associated to the production factor of knowledge. Investment to environmental innovations of production process and products is interrelated to the accumulation of the stock of knowledge. The extent to which variations in productivity can be explained by the environmental investment is estimated from regression analysis of Lithuanian industry sectors' level data for the period of 2000-2015. The results revealed insignificant average productivity effect of the total environmental investment, integrating the impact of different types of investments - investment aimed at reducing environmental impact of production and also investment aimed at production process improvement. However, there is evidence, that environmental investment in production process improvement has statistically significant effect on sector's productivity growth. This result supports the strong version of the Porter Hypothesis. [ABSTRACT FROM AUTHOR]