Working Paper: NBER ID: w1763
Authors: Klaus Conrad; Catherine J. Morrison
Abstract: It has often been asserted that imposition of environmental regulations in the 1970's may be a partial explanation for the productivity growth slowdowns experienced by most industrialized countries during that decade.The contention is that expenses incurred to satisfy these regulations, such as investment in pollution abatement capital, is unproductive in terms of measured output. Thus conventional productivity measures will be biased downward when such regulations are imposed. In this paper we construct a model which explicitly recognizes the difference between pollution abatement capital and "productive" capital and then use this framework to devleop an adjustment to nonparametric measures of productivity growth, purging them of the bias resulting from regulation. We measure the bias for the manufacturing sectors of three countries, the U.S., Canada and Germany, and thereby assess the impact of increased pollution abatement capital regulation on productivity growth. Our principal finding is that the bias, which depends on relative rates of growth of output and pollution abatement capital investment, is modest.
Keywords: pollution abatement; productivity growth; environmental regulations; international comparison
JEL Codes: Q53; D24; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pollution abatement investment (kpa) (Q52) | productivity growth (O49) |
| costs of pollution abatement capital are separable from productive capital costs (Q52) | downward bias in productivity measures (D20) |
| increase in pollution abatement capital expenditures (Q52) | less decline in adjusted productivity measures (O49) |
| environmental regulations (Q58) | productivity growth (O49) |
| pollution abatement capital (kpa) (Q52) | bias in productivity measures (D20) |