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Environmental spillovers and local agglomeration: Evidence from large plant openings

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  • Kim, Taehyun
  • Lim, Yaeji

Abstract

This paper investigates the impact of agglomeration on the spillover effects of corporate environmental performance by exploiting quasi-natural experiments involving Million Dollar Plant (MDP) openings. Analyzing plant-level toxic emissions and pollution prevention data from the U.S., we find that large MDP openings prompt neighboring incumbent plants to emit more toxic chemicals compared to those from facilities in runner-up counties. Neighboring plants in winning counties also reduce their pollution control measures. Prior to the MDP events, we observe comparable trends in pollution emissions and balanced sample characteristics. Furthermore, the increase in toxic emissions is more pronounced in regions with lenient environmental regulations. The findings suggest that increased financial constraints, due to higher production costs from local agglomeration, may drive these negative environmental externalities.

Suggested Citation

  • Kim, Taehyun & Lim, Yaeji, 2024. "Environmental spillovers and local agglomeration: Evidence from large plant openings," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:beexfi:v:43:y:2024:i:c:s2214635024000832
    DOI: 10.1016/j.jbef.2024.100968
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    More about this item

    Keywords

    Large plant opening; Spillover effects of agglomeration; ESG; Toxic emissions; Pollution prevention; Environmental regulation;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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