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The confusing relationship between environmental policy and location behaviour of firms: A methodological review of selected case studies

Author

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  • Henk Folmer

    () (CentER, Tilburg University and Department of General Economics, Wageningen University, Hollandseweg 1, 6706 KN Wageningen, The Netherlands)

  • Tim Jeppesen

    () (Department of Economics, University of Southern Denmark, Odense Campus, Campusvej 55, 5230 Odense M, Denmark)

Abstract

The literature on the effects of environmental policy on the location behaviour of firms has so far failed to draw any firm conclusions. Different studies have shown that the effects may be zero, negative or positive. They always tend to be small. This paper argues that methodological issues form a major explanation for the contradictory results. It discusses the methodological strengths and weaknesses of data collection and secondary data analysis. Moreover, several typical studies are reviewed both in terms of methodology and findings. The paper finds that methodological issues tend to affect the results. The main substantive result is that at the present intensity of environmental policy plant closing is most likely to result, followed by reduced location of new firms whereas relocation is the least likely response. The results have to be interpreted with caution, however, because of methodological problems inherent to most studies.

Suggested Citation

  • Henk Folmer & Tim Jeppesen, 2001. "The confusing relationship between environmental policy and location behaviour of firms: A methodological review of selected case studies," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 35(4), pages 523-546.
  • Handle: RePEc:spr:anresc:v:35:y:2001:i:4:p:523-546
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    Citations

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    Cited by:

    1. Galeotti, Marzio & Rubashkina, Yana & Salini, Silvia & Verdolini, Elena, 2018. "Environmental policy performance and its determinants: Application of a three-level random intercept model," Energy Policy, Elsevier, vol. 114(C), pages 134-144.
    2. Mitch Kunce, 2004. "Centralized versus local environmental standard setting: firm, capital, and labor mobility in an interjurisdictional model of firm-specific emission permitting," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(1), pages 1-9, March.
    3. Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
    4. T. Verbeke & M. De Clercq, 2003. "Environmental policy uncertainty, policy coordination and relocation decisions," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/208, Ghent University, Faculty of Economics and Business Administration.
    5. Henk Folmer, 2009. "OPEC versus Kyoto by Henk Folmer," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(3), pages 23-29, October.

    More about this item

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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