Environmental policy and productivity growth in the manufacturing industry: evidence from selected European countries

The European Union’s pursuit of sustainable economic growth alongside ambitious carbon reduction targets has introduced a new era of green industrial policy. However, the implementation of environmental regulations may cause unintended economic consequences. This study investigates the relationship between environmental policy and productivity growth in seven manufacturing sectors across five EU member states from 2008 to 2015. Employing the Malmquist and Malmquist-Luenberger productivity indexes, we disentangle the effects of these policies on sectoral productivity. Our findings reveal that while environmental regulations have contributed to reduced emissions, they have also been associated with declining productivity growth in several manufacturing sectors. These results underscore the importance of designing environmental policies that balance ecological sustainability and economic performance, ensuring that green transitions support rather than hinder industrial productivity