The conundrum of porter hypothesis, pollution haven hypothesis, and pollution halo hypothesis: evidence from the Indian manufacturing sector

In the globalized world, factors, such as environmental regulations and outcomes, are interlinked with foreign direct investment and technological innovation. However, firm-level theories mostly treat them independently. We have filled the gap by carrying out empirical research with an integrated approach at the firm level. The theoretical framework is based on Porter's hypothesis and the pollution haven hypothesis/pollution halo hypothesis. We collect the data from the center for monitoring Indian Economy Prowess IQ and the Ministry of Environment, Forest, and Climate Change. Using the modified Krugman specialization index, we find that Indian manufacturing firms are neither converging nor specialized in terms of technical progress. Estimating a z-score for environmental stringency, we interact that with the pollution loads of the firms. Our findings suggest that environmental regulation does not ensure a "win-win" situation for the producers, refuting Porter's hypothesis. Rather, factors such as profit margin and R&D produce robust results across different models to induce the productivity of the firm. One of the concerning facts is older firms using vintage capital are detrimental to productivity enhancement, and there is evidence of layoff at the cost of increasing profits to improve the firm performance. Also, more dependence for export-intensive firms on material increases the cost and, thereby, reduces productivity. In addition, we apply a panel threshold regression model and conclude that there is evidence of a single threshold, and irrespective of the choice of technology foreign firms induces the energy intensity, confirming a pollution Haven hypothesis.