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Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment

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  • Daniel J. Henderson

    (Department of Economics, State University of New York at Binghamton)

  • Daniel L. Millimet

    (Department of Economics, State University of New York at Binghamton)

Abstract

Keller and Levinson (2002) utilize state-level panel data on inflows of foreign direct investment along with an innovative measure of relative pollution abatement costs to assess the impact of environmental stringency on capital flows. Using standard parametric panel data models, the authors find moderate evidence that capital flows are sensitive to abatement costs. Using recently developed nonparametric methods, we assess the robustness of this conclusion. The nonparametric approach reveals that (a) some of the parametric results are not robust, and (b) the impact of relative abatement costs is heterogeneous across states and generally of smaller magnitude than previously suggested. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Daniel J. Henderson & Daniel L. Millimet, 2007. "Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 178-183, February.
    • Handle: RePEc:tpr:restat:v:89:y:2007:i:1:p:178-183
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    References listed on IDEAS

    as
    1. Arik Levinson, 2001. "An Industry-Adjusted Index of State Environmental Compliance Costs," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 131-158, National Bureau of Economic Research, Inc.
    2. Racine, Jeff & Li, Qi, 2004. "Nonparametric estimation of regression functions with both categorical and continuous data," Journal of Econometrics, Elsevier, vol. 119(1), pages 99-130, March.
    3. Carlo Carraro & Gilbert E. Metcalf, 2000. "Behavioral and Distributional Effects of Environmental Policy Introduction," NBER Working Papers 7648, National Bureau of Economic Research, Inc.
    4. List, John A. & McHone, W. Warren & Millimet, Daniel L., 2004. "Effects of environmental regulation on foreign and domestic plant births: is there a home field advantage?," Journal of Urban Economics, Elsevier, vol. 56(2), pages 303-326, September.
    5. Clifford M. Hurvich & Jeffrey S. Simonoff & Chih‐Ling Tsai, 1998. "Smoothing parameter selection in nonparametric regression using an improved Akaike information criterion," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 60(2), pages 271-293.
    6. John A. List & Daniel L. Millimet & Per G. Fredriksson & W. Warren McHone, 2003. "Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 944-952, November.
    7. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643, January.
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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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