Regulation Market or Social Pressure? Determinants of Environmental Investments in the Industrial Sector

This study is an attempt to analyze the probability of industrial firms in Sao Paulo to undertake environmental investments utilizing a database from the 1996 economic industrial survey Paep together with economic and social of the location where production units are located. To carry this on, a Probit model is employed to estimate marginal effects of firm's characteristics and formal and informal regulation. Taking into account simultaneity of decisions between firms and regulator, instrumented variables are used. Results suggest informal regulation act indirectly on firm's decisions on investment through regulators. Size, export-orientation and origin of capital are also significant variables explaining the environmental investment pattern