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Environmental Regulations and FDI Inflows to U.S. States

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~00-00-06.

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Length: 40
Date of creation: 05 Aug 2000
Date of revision:
Handle: RePEc:geo:guwopa:gueconwpa~00-00-06
Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036
Phone: 202-687-6074
Fax: 202-687-6102
Web page: http://econ.georgetown.edu/
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Order Information: Postal: Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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  1. Jerry A. Hausman & Bronwyn H. Hall & Zvi Griliches, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," NBER Technical Working Papers 0017, National Bureau of Economic Research, Inc.
  2. Yuquing Xing & Charles Kolstad, 2002. "Do Lax Environmental Regulations Attract Foreign Investment?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(1), pages 1-22, January.
  3. Wayne B Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," Working Papers 97-8, Center for Economic Studies, U.S. Census Bureau.
  4. Eli Berman & Linda T.M. Bui, 1998. "Environmental Regulation and Productivity: Evidence from Oil Refineries," Papers 0091, Boston University - Industry Studies Programme.
  5. Congleton, Roger D, 1992. "Political Institutions and Pollution Control," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 412-21, August.
  6. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
  7. Randy A. Becker & J. Vernon Henderson, 1999. "Costs of Air Quality Regulation," NBER Working Papers 7308, National Bureau of Economic Research, Inc.
    • Randy A. Becker & J. Vernon Henderson, 2001. "Costs of Air Quality Regulation," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 159-186 National Bureau of Economic Research, Inc.
  8. 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.
  9. Josh Ederington, 2001. "International Coordination of Trade and Domestic Policies," American Economic Review, American Economic Association, vol. 91(5), pages 1580-1593, December.
  10. List, John A. & Co, Catherine Y., 2000. "The Effects of Environmental Regulations on Foreign Direct Investment," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 1-20, July.
  11. Kahn, Matthew E., 1997. "Particulate pollution trends in the United States," Regional Science and Urban Economics, Elsevier, vol. 27(1), pages 87-107, February.
  12. Brian R. Copeland, 1990. "Strategic Interaction among Nations: Negotiable and Non-negotiable Trade Barriers," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 84-108, February.
  13. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
  14. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  15. Low, P., 1992. "International Trade and the Environment," World Bank - Discussion Papers 159, World Bank.
  16. John A. List & W. Warren McHone & Daniel L. Millimet, 2003. "Effects of air quality regulation on the destination choice of relocating plants," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 657-678, October.
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