Spatial Heterogeneity in Environmental Regulation Enforcement and the Firm Location Decision among U.S. Counties

We estimate a negative binomial model with fixed effects to examine the impact of spatial differences in environmental regulation on manufacturing capital flows. Using a newly available data set, we find that stricter air quality standards with respect to ozone deter births of polluting plants, suggesting that heterogeneity in regulatory standards may create a spatial browning process. We also find that spatial differences in environmental regulation do not play a role in the location decision of plants that are not pollution-intensive. Finally, we also examine the effects on capital flows with respect to three other criteria air pollutants regulated under the amendments to the Clean Air Act. We find that births of particulates-intensive manufacturers are deterred by stricter regulation with respect to particulates emissions but the location decisions of plants that emit high levels of carbon monoxide and sulfur dioxide are not significantly affected by increased regulation of the respective criteria pollutant.