Environmental Compliance Costs and Foreign Direct Investment Inflows to U.S. States

42 Pages Posted: 6 Mar 2000 Last revised: 20 Feb 2022

See all articles by Wolfgang Keller

Wolfgang Keller

University of Colorado; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Arik Levinson

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1999

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.

Suggested Citation

Keller, Wolfgang and Levinson, Arik M., Environmental Compliance Costs and Foreign Direct Investment Inflows to U.S. States (September 1999). NBER Working Paper No. w7369, Available at SSRN: https://ssrn.com/abstract=194630

Wolfgang Keller (Contact Author)

University of Colorado ( email )

Department of Economics
PO Box 256
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Arik M. Levinson

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-5571 (Phone)
202-687-6102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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