This paper estimates the extent to which stringent environmental standards in some U.S. states have deterred foreign direct investment (FDI). It addresses three shortcomings in the existing literature on the economic effects of environmental regulations. First, it avoids comparing regulations in different countries by using data on the regulatory stringency of U.S. states, and examining whether there is relatively more FDI to less stringent states. Second, it uses use an index of relative compliance costs that accounts for states' different industrial compositions. Third, it uses a panel of annual measures of relative regulatory stringency from 1977 to 1994. We examine two types of FDI data: BEA data on gross property, plant and equipment investment at foreign-owned manufacturing facilities; and ITA data on planned new factory expenditures by foreign-owned firms. We find some evidence of small deterrent effects of environmental regulations on particularly pollution-intensive industries, but little evidence of large or widespread effects. While the broad conclusions are consistent with the existing literature, this paper does address three important concerns with that literature.
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~00-00-05.
Length: 40 Date of creation: 05 Aug 2000 Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~00-00-05
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Find related papers by JEL classification: R38 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Government Policies; Regulatory Policies F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Josh Ederington & Arik Levinson & Jenny Minier, 2003.
"Footloose and Pollution-Free,"
NBER Working Papers
9718, National Bureau of Economic Research, Inc.
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Other versions:
Josh Ederington, Arik Levinson & Jenny Minier, .
"Footlose and Pollution Free,"
Working Papers
gueconwpa~03-03-04, Georgetown University, Department of Economics.
[Downloadable!]