This paper analyzes the dynamics of industrial development and structural changes, and its impacts on sustainable development. The weak form of the Porter Hypothesis is examined under industrial transition and structural changes. Explicitly incorporating the Markov regime switching mechanism in a productivity framework, we measure how sustainable development is affected and how firms are adjusted when facing industrial transition and structural changes. Applied to Taiwan manufacturing industries, the model is implemented to identify structural changes and to evaluate the viability of sustainable development under new constraints. This study suggests industries to adopt more sustainable practices which can promote and even improve industrial competitiveness. Such practices would empower economies to assess current structural changes and, based on the environmental implications, recommend future economic policy for sustainable development.