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When Do Firms Shift Production Across States to Avoid Environmental Regulation?

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  • Wayne B. Gray
  • Ronald J. Shadbegian

Abstract

This paper takes a new approach to testing the impact of state environmental regulatory stringency on firms' location decisions, focusing on firms' allocation of production across states. We use Census data for the paper industry to measure the share of each firm's production in each state during 1967-2002. We use a conditional logit model, controlling for a variety of state characteristics that influence firm costs and revenues, and testing several measures of state environmental stringency. Firms allocate significantly smaller production shares to states with stricter regulations, but there is significant heterogeneity across firms in their sensitivity to regulatory stringency. Firms with low compliance rates are more sensitive than firms with high compliance rates, consistent with a model where compliance rates are driven by differences across firms in the costs of compliance, rather than in the benefits of compliance.

Suggested Citation

  • Wayne B. Gray & Ronald J. Shadbegian, 2002. "When Do Firms Shift Production Across States to Avoid Environmental Regulation?," NBER Working Papers 8705, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8705
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    References listed on IDEAS

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    1. Henderson, J Vernon, 1996. "Effects of Air Quality Regulation," American Economic Review, American Economic Association, vol. 86(4), pages 789-813, September.
    2. 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 161-172, December.
    3. Wayne B Gray & Ronald J Shadbegian, 1994. "Pollution Abatement Costs, Regulation And Plant-Level Productivity," Working Papers 94-14, Center for Economic Studies, U.S. Census Bureau.
    4. Berman, Eli & Bui, Linda T. M., 2001. "Environmental regulation and labor demand: evidence from the South Coast Air Basin," Journal of Public Economics, Elsevier, vol. 79(2), pages 265-295, February.
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    6. Eli Berman & Linda T. M. Bui, 2001. "Environmental Regulation And Productivity: Evidence From Oil Refineries," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 498-510, August.
    7. Wayne B. Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," NBER Working Papers 5880, National Bureau of Economic Research, Inc.
    8. Virginia D. McConnell & Robert M. Schwab, 1990. "The Impact of Environmental Regulation on Industry Location Decisions: The Motor Vehicle Industry," Land Economics, University of Wisconsin Press, vol. 66(1), pages 67-81.
    9. Timothy J. Bartik, 2002. "The Effects of Environmental Regulation on Business Location in the United States," Book chapters authored by Upjohn Institute researchers,in: Wayne B. Gray (ed.), Economic Costs and Consequences of Environmental Regulation, pages 129-151 W.E. Upjohn Institute for Employment Research.
    10. 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.
    11. 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.
    12. Gray, Wayne B & Shadbegian, Ronald J, 1998. "Environmental Regulation, Investment Timing, and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 235-256, June.
    13. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau.
    14. 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.
    15. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
    16. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February.
    17. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
    18. 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 654-674, August.
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    Cited by:

    1. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 519-540, November.
    2. Martin T. Ross & Michael P. Gallaher & Brian C. Murray & Wanda W. Throneburg & Arik Levinson, 2004. "PACE Survey: Background, Applications, and Data Quality Issues," NCEE Working Paper Series 200409, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Jul 2004.
    3. Cole, Matthew A. & Elliott, Robert J.R. & Shimamoto, Kenichi, 2005. "Industrial characteristics, environmental regulations and air pollution: an analysis of the UK manufacturing sector," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 121-143, July.
    4. You Wu & Jichuan Sheng & Fang Huang, 2015. "China’s future investments in environmental protection and control of manufacturing industry: lessons from developed countries," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 77(3), pages 1889-1901, July.
    5. Shu-Chen Chang, 2015. "Threshold effect of foreign direct investment on environmental degradation," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 14(1), pages 75-102, December.
    6. Cole, Matthew A. & Elliott, Robert J.R. & Wu, Shanshan, 2008. "Industrial activity and the environment in China: An industry-level analysis," China Economic Review, Elsevier, vol. 19(3), pages 393-408, September.
    7. Jay P. Shimshack & Michael B. Ward, 2004. "Enforcement and Environmental Compliance: A Statistical Analysis of the Pulp and Paper Industry," Discussion Papers Series, Department of Economics, Tufts University 0414, Department of Economics, Tufts University.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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