Product-Related Environmental Regulation, Innovation, and Competitiveness: Empirical Evidence From Malaysian and Vietnamese Firms

In the past decade, product-related environmental regulations (PRERs) aimed at environmental protection and consumers’ health and safety were actively introduced in developed countries, led by the EU. This study examined the impact of two PRERs released by the EU—RoHS and REACH—on Malaysian and Vietnamese firms’ compliance. The first analysis focuses on the R&D enhancement effect of PRERs. We then consider productivity as a realization of innovations and examine if the R&D enhanced by PRERs can promote further productivity. The result shows that the response to REACH can create incentives to advance R&D. Further estimations on the effect of induced R&D on firm productivity show a significant positive relationship between them. On the other hand, no relationship between the response to RoHS and R&D expenditure is found. Moreover, the analysis also shows that firms comply with RoHS and REACH in different ways, but just the ability to continue exporting to the EU motivates compliance.