The Effects of Environmental Regulation on the Competitiveness of U.S. Manufacturing
The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants' total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters. Carbon monoxide regulations, on the other hand, appear to increase measured TFP, especially among refineries. The application of corrections for the confounding of price increases and output declines and sample selection on survival produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, about 8.8 percent of manufacturing sector profits in this period.
We thank participants at several seminars, Lynn Riggs, and Frank Limehouse for helpful comments. Alex Verkhivker provided able research assistance. The research in this paper was conducted while Syverson was a Special Sworn Status researcher of the U.S. Census Bureau at the Chicago Census Research Data Center. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to insure that no confidential data are revealed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Greenstone holds more than $10,000 in stock of various public companies that may be subject to air pollution regulations under the Clean Air Act.
- Environmental regulations have reduced total factor productivity by approximately 4.8 percent for manufacturing plants in non-attainment...