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

68 Pages Posted: 26 Jan 2015  

Joseph S. Shapiro

Yale University, Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Reed Walker

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

Multiple version iconThere are 5 versions of this paper

Date Written: January 26, 2015

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.

JEL Classification: F18, F64, H23, Q56

Suggested Citation

Shapiro, Joseph S. and Walker, Reed, Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences (January 26, 2015). Cowles Foundation Discussion Paper No. 1982. Available at SSRN: https://ssrn.com/abstract=2555604 or http://dx.doi.org/10.2139/ssrn.2555604

Joseph S. Shapiro (Contact Author)

Yale University, Department of Economics ( email )

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New Haven, CT 06510
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203-432-5075 (Phone)
203-432-6323 (Fax)

HOME PAGE: http://economics.yale.edu/people/joseph-s-shapiro

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Reed Walker

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

545 Student Services Building
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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