Abstract
We estimate a negative binomial model with fixed effects to examine the impact of spatial differences in environmental regulation on manufacturing capital flows. Using a newly available data set, we find that stricter air quality standards with respect to ozone deter births of polluting plants, suggesting that heterogeneity in regulatory standards may create a spatial browning process. We also find that spatial differences in environmental regulation do not play a role in the location decision of plants that are not pollution-intensive. Finally, we also examine the effects on capital flows with respect to three other criteria air pollutants regulated under the amendments to the Clean Air Act. We find that births of particulates-intensive manufacturers are deterred by stricter regulation with respect to particulates emissions but the location decisions of plants that emit high levels of carbon monoxide and sulfur dioxide are not significantly affected by increased regulation of the respective criteria pollutant.
Highlights
Prior to the creation of the Environmental Protection Agency in 1970, environmental regulation control was in the hands of state and local authorities
The purpose of this research is to use a newly available county-specific data set on establishment births to examine the impact of air quality regulation on the location decisions of pollution-intensive manufacturing plants across the U.S Following research by Becker and Henderson (2000), List and McHone (2000), and List et al (2003), we are primarily interested in examining the firm location impacts of increased regulatory standards with respect to ozone under the Clean Air Act (CAA)
While Becker (2005) examines Pollution Abatement Costs and Expenditures (PACE) survey data to investigate the effects of the CAA on plants‘ capital expenditures and operating costs, we investigate increased regulatory stringency on high emitters of these criteria air pollutants in a more traditional firm location analysis
Summary
Prior to the creation of the Environmental Protection Agency in 1970, environmental regulation control was in the hands of state and local authorities. Opponents of local control over environmental regulation argued that this created a ―race to the bottom‖ phenomenon where local legislators had incentives to set sub-optimum environmental regulatory standards in an attempt to attract polluting industries to the area. The decentralized status of air quality regulation and rising ambient concentration levels led to Congress creating administrative bodies such as the Environmental Protection Agency (EPA) and the Council on Environmental Quality to enforce new regulatory statutes. An academic debate has emerged regarding whether a relationship exists between federal air quality regulations and the capital flows of pollution-intensive manufacturing plants. Pollution-intensive manufacturers may be deterred from opening new plants in areas with stricter regulations.
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