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US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms

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  • Rema Hanna

Abstract

This paper measures the response of US-based multinationals to the Clean Air Act Amendments (CAAA). Using a panel of firm-level data over the period 1966-1999, I estimate the effect of regulation on a multinational's foreign production decisions. The CAAA induced substantial variation in the degree of regulation faced by firms, allowing for the estimation of econometric models that control for firm-specific characteristics and industrial trends. I find that the CAAA caused regulated multinational firms to increase their foreign assets by 5.3 percent and their foreign output by 9 percent. Heavily regulated firms did not disproportionately increase foreign investment in developing countries. (JEL F23, K32, L51, Q52, Q53, Q58)

Suggested Citation

  • Rema Hanna, 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 158-189, July.
  • Handle: RePEc:aea:aejapp:v:2:y:2010:i:3:p:158-89
    Note: DOI: 10.1257/app.2.3.158
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms (American Economic Journal: Applied Economics 2010) in ReplicationWiki

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