Environmental Regulations and Livestock Production Levels: What is the Direction of Causality?

Abstract

Fundamental to the assertion that environmental regulatory standards are strategically set by decentralized authorities and consequently firms respond to spatial differences in regulatory standards is the underline causal relationship. Establishing the cause-effect association between regulatory standard setting and response is essential to justify the existence of the pollution haven and the potential for a race to the bottom. In this paper using 25 years data of the livestock production intensities for hog, dairy and fed cattle sectors and environmental regulatory stringency measure from 1975 to 2000 for 48 contiguous states we explore whether the direction of causality as suggested by race to the bottom hypothesis is in fact supported by the empirical evidence and hence the potential for existence of pollution haven is real in the U.S. livestock production sector. The results in general support the existence of pollution havens and potential for a race to the bottom at the regional level. There were no convincing evidences supporting the reserve causality that the industry driving policy hypothesis. Across the different livestock types, dairy sector provided conclusive evidence that in the regions with substantial growth of dairy inventories, there are strong evidences for a race to the bottom.