• Environmental and Resource Economics Review
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• v.16 no.1
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• pp.171-197
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• 2007

In this paper we provide a methodology that permits test of feasibility of Porter hypothesis under limited data environment by utilizing two types of output distance function: Shephard distance function and directional distance function. The production technology supported by Porter hypothesis is embodied in the directional distance function. The average annual marginal abatement cost for $SO_2$ obtained by estimating the directional distance function is higher than the one obtained with the Shephard distance function by about 50 percent in the Korean electric power industry over the period 1970~1998. This result implies that feasibility of Porter hypothesis depends upon whether investment in production capital and process can bring more than a 50 percent increase in the average productivity.