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Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous

Journal of applied econometrics (Chichester, England), 2016-06, Vol.31 (4), p.652-677 [Peer Reviewed Journal]

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Title:
Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous
Author: Millimet, Daniel L. ; Roy, Jayjit
Subjects: Economic models ; Environmental regulations ; Hypotheses
Is Part Of: Journal of applied econometrics (Chichester, England), 2016-06, Vol.31 (4), p.652-677
Description: The pollution haven hypothesis (PHH) posits that production within polluting industries will shift to locations with lax environmental regulation. While straightforward, the existing empirical literature is inconclusive owing to two shortcomings. First, unobserved heterogeneity and measurement error are typically ignored due to the lack of a credible, traditional instrumental variable for regulation. Second, geographic spillovers have not been adequately incorporated into tests of the PHH. We overcome these issues utilizing two novel identification strategies within a model incorporating spillovers. Using US state-level data, own environmental regulation negatively impacts inbound foreign direct investment. Moreover, endogeneity is both statistically and economically relevant.
Publisher: Chichester: Blackwell Publishing Ltd
Language: English
Identifier: ISSN: 0883-7252
EISSN: 1099-1255
DOI: 10.1002/jae.2451
CODEN: JAECET
Source: Alma/SFX Local Collection

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