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Firm Internal Network, Environmental Regulation, and Plant Death

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Abstract

This paper examines the role of a firm's internal network in determining plant shutdown decisions in response to environmental regulations. Using unique plant-level data for U.S. manufacturing industries from 1990 to 2008, we find evidence that, in response to increasingly stringent environmental regulations at the county level, multi-plant firms do exercise their greater flexibility in adjusting production, relative to single-plant firms. Specifically, in regulated counties, the likelihood of a plant shutting down is higher for multi-plant firms. Moreover, we measure the firm internal network effect at the local, neighborhood, and the wider-area levels, as defined by the number of affiliated plants clustered in different regional levels. Their effects on plant closure decisions for dirty subsidiaries vary with the network level. We further decompose the neighborhood network into those in regulated and unregulated neighborhood counties, and examine how these network metrics are associated with closure decisions of dirty plants affiliated with multi-plant firms. The presence of more sibling plants residing in neighboring counties that are free from regulatory controls are associated with a higher closure probability of dirty plants in a regulated county.

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  • Jingbo Cui & GianCarlo Moschini, 2018. "Firm Internal Network, Environmental Regulation, and Plant Death," Center for Agricultural and Rural Development (CARD) Publications 18-wp585, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:18-wp585
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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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