Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences

69 Pages Posted: 31 Jan 2015

See all articles by Joseph S. Shapiro

Joseph S. Shapiro

University of California, Berkeley; National Bureau of Economic Research (NBER)

Reed Walker

National Bureau of Economic Research (NBER); University of California, Berkeley - Haas School of Business

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Abstract

Between 1990 and 2008, emissions of the most common air pollutants from U.S. manufacturing fell by 60 percent, even as real U.S. manufacturing output grew substantially. This paper develops a quantitative model to explain how changes in trade, environmental regulation, productivity, and consumer preferences have contributed to these reductions in pollution emissions. We estimate the model's key parameters using administrative data on plant-level production and pollution decisions. We then combine these estimates with detailed historical data to provide a model-driven decomposition of the causes of the observed pollution changes. Finally, we compare the model-driven decomposition to a statistical decomposition. The model and data suggest three findings. First, the fall in pollution emissions is due to decreasing pollution per unit output within narrowly defined products, rather than to changes in the types of products produced or changes to the total quantity of manufacturing output. Second, the implicit pollution tax that rationalizes firm production and abatement behavior more than doubled between 1990 and 2008. Third, environmental regulation explains 75 percent or more of the observed reduction in pollution emissions from manufacturing.

Keywords: environmental regulation, air quality, trade and environment

JEL Classification: F18, F64, H23, Q56

Suggested Citation

Shapiro, Joseph S. and Walker, Reed and Walker, Reed, Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences. IZA Discussion Paper No. 8789, Available at SSRN: https://ssrn.com/abstract=2558368 or http://dx.doi.org/10.2139/ssrn.2558368

Joseph S. Shapiro (Contact Author)

University of California, Berkeley ( email )

HOME PAGE: http://joseph-s-shapiro.com

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Reed Walker

University of California, Berkeley - Haas School of Business ( email )

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Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/rwalker/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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