The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 & 1977 Clean Air Act Amendments and the Census of Manufactures

Abstract

This paper estimates the effects of environmental regulations on industrial activity. The analysis is conducted with the most comprehensive data available on both regulations from the Clean Air Act Amendments' division of counties into pollutant-specific nonattainment and attainment categories and manufacturing activity from the 1.75 million plant observations that comprise the 1967-87 Censuses of Manufactures. Emitters of the controlled pollutants are subject to greater regulatory oversight in nonattainment counties. I find that in the first 15 years after the Amendments became law (1972- 1987), nonattainment counties (relative to attainment ones) lost approximately 590,000 jobs, $37 billion in capital stock, and $75 billion (1987$) of output in pollution intensive industries. These estimates are derived from a statistical model for plant-level growth that controls for plant fixed effects, unrestricted industry shocks, and unrestricted county shocks. Importantly these findings are robust across many specifications, and the effects are apparent across a wide range of polluting industries. Although the decline in manufacturing activity was substantial in nonattainment counties, it was modest compared to the size of the entire manufacturing sector.