Does IT improve establishments' environmental performance? Evidence from US manufacturing

The main focus of this paper is to study the relationship between Information Technology (IT) and environmental performance in establishments in the U.S. manufacturing sector. Particularly, this research suggests that IT is an innovation inducing input that allows for improvements in both productivity and environmental performance at the same time. This argument is studied in the context of various theoretical models to test several key premises relating to the Porter Hypothesis. The paper initially discusses several different theoretical perspectives on the effects of environmental regulations and the possible role of IT on environmental performance. First, we consider a few of the proposed theories on the Porter Hypothesis. Next, we also develop a theoretical model that discusses the potential channels through which IT affects establishments’ environmental performance following a classic compliance and enforcement model developed by Becker (1974b) and Heyes (1998). The relationship between IT and environmental performance is then empirically tested by considering the decline in emissions associated with investments in IT in establishments in the U.S. manufacturing sector. Data from the U.S. Census’s Annual Survey of Manufactures and Census of Manufactures along with the EPA’s Toxic Releases Inventory are used for the study. Results suggest that a higher stringency in environmental regulations leads to a higher investment in IT for the establishments in the manufacturing sector. Results also indicate that a higher investment in IT is associated with greater productivity as well as better environmental performance at manufacturing plants. Further, the effect of IT on environmental performance seems to be getting stronger over time.