Working Paper: NBER ID: w7369
Authors: Wolfgang Keller; Arik Levinson
Abstract: This paper estimates the extent to which changing environmental standards have altered patterns of international investment. Our analysis goes beyond the existing literature in three ways. First, we avoid comparing regulations in different countries by using data on inward foreign direct investment (FDI) to the U.S. and on differences in the regulatory stringency of U.S. states. This approach has the advantage that data on environmental stringency in U.S. states are more comparable than that for different countries, and that U.S. states are more similar than countries in other difficult-to-measure dimensions. Second, our measure of environmental stringency accounts for differences in states' industrial compositions for earlier studies. Third, we employ a panel of annual measures of relative regulatory stringency from 1977 to 1994, allowing us to control for unobserved state characteristics that may be correlated with both FDI and compliance costs. We find some evidence of small deterrent effects of environmental regulations in particularly pollution-intensive industries large or widespread effects. While the broad conclusions are consistent with the existing literature, this paper does address three important concerns with that literature.
Keywords: No keywords provided
JEL Codes: F2; H73; Q2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unobserved factors (C29) | Regulatory stringency (L51) |
| Unobserved factors (C29) | FDI inflows (F21) |
| Regulatory stringency (L51) | Environmental compliance costs (Q52) |
| Environmental compliance costs (Q52) | FDI inflows (F21) |
| Regulatory stringency (L51) | FDI inflows (F21) |