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Environmental Regulation and Manufacturing Productivity at the Plant Level

  • Wayne B. Gray
  • Ronald J. Shadbegian

We analyze the connection between productivity, pollution abatement expenditures, and other measures of environmental regulation for plants in three industries (paper, oil, and steel). We examine data from 1979 to 1985, considering, both labor and total factor productivity, both levels and growth rates, and both annual measures and averages over the period. We find a strong connection between regulation and productivity when regulation is measured by compliance costs. More regulated plants have significantly lower productivity levels and slower productivity growth rates than less regulated plants. The magnitude of the impacts are larger than expected: a $1 increase in compliance costs appears to reduce TFP by the equivalent of $3 to $4. Thus, commonly used methods of calculating the impact of regulation on productivity are substantially underestimated. Other measures of regulation (compliance status, enforcement activity, and emissions) show much less consistent results. Higher enforcement, lower compliance, and higher emissions are generally associated with lower productivity levels and slower productivity growth, but the coefficients are rarely significant.

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File URL: http://www.nber.org/papers/w4321.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4321.

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Date of creation: Apr 1993
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Handle: RePEc:nbr:nberwo:4321
Note: PR EEE
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  1. Deily, Mary E. & Gray, Wayne B., 1991. "Enforcement of pollution regulations in a declining industry," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 260-274, November.
  2. Kim B. Clark, 1980. "The impact of unionization on productivity: A case study," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(4), pages 451-469, July.
  3. Klaus Conrad & Catherine J. Morrison, 1985. "The Impact of Pollution Abatement Investment on Productivity Change: AnEmpirical Comparison of the U.S., Germany, and Canada," NBER Working Papers 1763, National Bureau of Economic Research, Inc.
  4. Gollop, Frank M & Roberts, Mark J, 1983. "Environmental Regulations and Productivity Growth: The Case of Fossil-Fueled Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 654-74, August.
  5. Barbera, Anthony J & McConnell, Virginia D, 1986. "Effects of Pollution Control on Industry Productivity: A Factor Demand Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 161-72, December.
  6. Christainsen, Gregory B & Haveman, Robert H, 1981. "Public Regulations and the Slowdown in Productivity Growth," American Economic Review, American Economic Association, vol. 71(2), pages 320-25, May.
  7. Viscusi, W Kip, 1983. "Frameworks for Analyzing the Effects of Risk and Environmental Regulations on Productivity," American Economic Review, American Economic Association, vol. 73(4), pages 793-801, September.
  8. J. R. Norsworthy & Michael J. Harper & Kent Kunze, 1979. "The Slowdown in Productivity Growth: Analysis of Some Contributing factors," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 387-422.
  9. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
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