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Environmental Regulations and FDI Inflows to U.S. States

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Abstract

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.

Suggested Citation

  • Wolfgang Keller & Arik Levinson, 2000. "Environmental Regulations and FDI Inflows to U.S. States," Working Papers gueconwpa~00-00-06, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~00-00-06
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    References listed on IDEAS

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    14. Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
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    Cited by:

    1. Bradford David F. & Fender Rebecca A & Shore Stephen H. & Wagner Martin, 2005. "The Environmental Kuznets Curve: Exploring a Fresh Specification," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-30.
    2. Jeffrey A. Frankel & Andrew K. Rose, 2005. "Is Trade Good or Bad for the Environment? Sorting Out the Causality," The Review of Economics and Statistics, MIT Press, pages 85-91.
    3. Jeffrey A. Frankel, 2000. "Globalization of the Economy," NBER Working Papers 7858, National Bureau of Economic Research, Inc.
    4. Hilary Sigman, 2002. "International Spillovers and Water Quality in Rivers: Do Countries Free Ride?," American Economic Review, American Economic Association, pages 1152-1159.
    5. James A. Yunker, 2003. "Capital Wealth Inequality and Public Bads: A Mathematical Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 29(1), pages 105-119, Winter.
    6. Simon Condliffe & O. Ashton Morgan, 2009. "The effects of air quality regulations on the location decisions of pollution-intensive manufacturing plants," Journal of Regulatory Economics, Springer, pages 83-93.
    7. Raghbendra Jha & K.V. Bhanu Murthy, 2003. "A Critique of the Environmental Sustainability Index," Departmental Working Papers 2003-08, The Australian National University, Arndt-Corden Department of Economics.
    8. J. Aznar-Márquez & J. R. Ruiz-Tamarit, "undated". "Non-Catastrophic Endogenous Growth and the Environmental Kuznets Curve," Working Papers 2004-15, FEDEA.
    9. Jack, William & Lagunoff, Roger, 2006. "Dynamic enfranchisement," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 551-572, May.
    10. Hanna Rema Nadeem & Oliva Paulina, 2010. "The Impact of Inspections on Plant-Level Air Emissions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-33.
    11. Josh Ederington & Arik Levinson & Jenny Minier, 2005. "Footloose and Pollution-Free," The Review of Economics and Statistics, MIT Press, pages 92-99.
    12. Josh Ederington & Arik Levinson & Jenny Minier, 2005. "Footloose and Pollution-Free," The Review of Economics and Statistics, MIT Press, pages 92-99.
    13. James Boyce, 2003. "Inequality and Environmental Protection," Working Papers wp52, Political Economy Research Institute, University of Massachusetts at Amherst.

    More about this item

    Keywords

    environmental regulations; foreign direct investment; pollution haven; pollution abatement costs;

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • 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

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