Arik Levinson

Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures

Abstract This paper uses establishment-level data from the Census of Manufactures and the Survey of Pollution Abatement Costs and Expenditures to examine the effect of differences in the stringency of state environmental regulations on establishment location choice. Unlike previous work in this area, which has focused on particular industries or sets of plants and on one or two measures of environmental regulatory stringency, this study explores the relationship between site choice and environmental regulations using a broad range of industries and measures of stringency. It uses a conditional logit model of plant location choice to show that interstate differences in environmental regulations do not systematically affect the location choices of most manufacturing plants.

Examining the Evidence on Environmental Regulations and Industry Location

This article offers a review and critique of the large literature on the pollution havens hypothesis. This hypothesis refers to the notion that certain jurisdictions can become pollution havens as dirty industries relocate or expand in response to differences in regulatory stringency. The early literature, based on cross-sectional analyses, typically concludes that environmental regulations have an insignificant effect on firm location decisions. However, recent studies that use panel data to control for unobserved heterogeneity, or instruments to control for endogeneity, find statistically significant pollution haven effects of reasonable magnitude. Furthermore, this distinction appears regardless of whether the studies look across countries, states, counties, or industries, or whether they examine plant locations, investment, or international trade patterns.

Energy use by apartment tenants when landlords pay for utilities

Energy costs are included in the rent for many US apartments, giving tenants little incentive to conserve. This apparent market failure has two explanations: the tenants value the utility-included rental contracts more than they value the extra energy they consume, or the landlords value the contracts more than the cost of that extra energy. We use the Residential Energy Consumption Survey and the American Housing Survey to estimate energy consumption and rent premiums for utility-included apartments. While rents are higher than for comparable metered apartments, the difference is smaller than the cost of the energy used, a finding that supports landlord-side explanations.

Trade Liberalization and Pollution Havens

Abstract U.S. Presidential Executive Order 13141 commits the United States to a careful assessment and consideration of the environmental impacts of trade agreements. The most direct mechanism through which trade liberalization would affect environmental quality in the U.S. is through the composition of industries. Freer trade means greater specialization, increasing the concentration of polluting industries in some countries and decreasing it in others. We begin by documenting the substantial shift in U.S. manufacturing toward cleaner industries from 1972 to 1994. We then use annual industry-level data on imports to the U.S. to examine whether this compositional shift can be traced to the significant trade liberalization that occurred over the same time period, and we conclude that no such connection exists. A shift toward cleaner industries has also occurred among U.S. imports, and we find no evidence that pollution-intensive industries have been disproportionately affected by the tariff changes.

Offshoring Pollution: Is the United States Increasingly Importing Polluting Goods?

The question posed by the title of this article has been at the heart of debates about pollution havens, industrial flight to developing countries, and now carbon “leakage.” Is the United States increasingly importing goods whose production generates relatively more pollution, rather than manufacturing those goods domestically? The consensus seems to be “yes,” at least judging by the many public policies designed to counteract this offshoring of pollution. The evidence, however, is mixed, at least in part because empirical research has focused on a slightly different set of questions. After reviewing this research, I present a simple methodology for answering the specific question asked in the title. Using the World Banks 1987 inventory of industry-specific U.S. air pollution emissions intensities, Bureau of Economic Analysis input–output tables, and data on U.S. imports, I show that from 1972 to 2001 the composition of U.S. imports shifted toward relatively clean goods, rather than polluting goods. Perhaps more surprising, this “green” shift of U.S. imports is even larger than the corresponding green shift of U.S. domestic manufacturing. Based on this analysis, the article concludes that over the past thirty years, the United States does not appear to have been offshoring pollution by importing polluting goods.

The Ups and Downs of the Environmental Kuznets Curve

By now the observation that some pollutants appear to increase and then decrease with economic development has become a widely accepted stylized fact. This paper argues that the fundamental insight of the empirical literature is merely that pollution does not necessarily increase with economic growth, and that the fundamental insight of the theoretical literature is that the observed inverse-U-shaped pollution-income relationship is neither necessary nor sufficient for Pareto-efficient environmental policies. Furthermore, the inverse-U-shaped path is not unique to environmental phenomenon, and may exist wherever a desirable good generates an undesirable side-effect. Finally, all of these points can be made without most of the econometric or theoretical mechanics that fill this literature.

Why oppose TDRs?: Transferable development rights can increase overall development

Economists have long argued that systems of marketable permits are a cost-effective means of regulating externalities. Though these ideas have only recently been implemented in the field of pollution control, transferable development rights (TDRs) have been used for decades by city planners in many locales. Most opponents of permit trading contest the granting of property rights to the originators of harmful effects on ethical grounds, and rarely argue that such schemes increase the total external harm. This paper formalizes the second argument by showing that in a partial equilibrium model of urban zoning, replacing a uniform height zoning rule with a TDR system can lead to greater overall development.

Measuring the Stringency of Environmental Regulations

Do environmental regulations discourage investment, reduce labor demand, or alter patterns of international trade? To answer these important policy questions, we need ways to measure the stringency of environmental regulations empirically. While creating measures of stringency is often characterized as a data collection challenge, we identify four fundamental conceptual obstacles to evaluating these measures: multidimensionality, simultaneity, industrial composition, and capital vintage. We then describe recent approaches used by researchers to measure the stringency of environmental regulations, primarily in the United States, and evaluate their success in light of these obstacles. We find that few approaches come close to being the ideal—a theoretically motivated, tractable, single measure that captures environmental regulatory stringency empirically.

Fiscal Institutions in U.S. States

The fifty U.S. states employ a wide variety of fiscal institutions designed to constrain state tax and expenditure policy. Some, such as balanced budget requirements and supermajority rules for tax increases, have been proposed for the federal government. Others, such as budgetary line-item-veto authority have even been enacted by Congress, but have since been ruled unconstitutional at the federal level. Advocates typically point to the states as examples from which federal policy makers can learn, but to date there is very little systematic evidence on the effectiveness of these state institutions, either individually or in concert. Furthermore, what evidence exists struggles to deal with two difficult empirical problems: the endogenous nature of the fiscal institutions, and their interactions with one another. This paper describes six of the most important state-level fiscal institutions, presents existing and new evidence regarding their consequences, and discusses empirical strategies for handling their complex endogenous and interactive character.

A Direct Estimate of the Technique Effect: Changes in the Pollution Intensity of US Manufacturing, 1990–2008

Pollution emitted by US manufacturers is falling while output is rising. What accounts for this cleanup? Prior studies attribute the majority to “technique,” a mix of input substitution, process changes, and end-of-pipe controls. But that estimate is a residual left over after calculating other explanations. This paper provides the first direct estimate of the technique effect. I calculate analogues to Laspeyres and Paasche price indexes across more than 400 industries for six major air pollutants. The directly estimated technique effect confirms the indirect estimates. Production technique changes account for 90% of the overall cleanup of US manufacturing.