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Does environmental regulation matter? Determinants of the location of new manufacturing plants in India in 1994

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  • Mani, Muthukumara
  • Pargal, Sheoli
  • Huq, Mainul

Abstract

The cost of complying with environmental regulations has been cited as a major burden on businesses. Is it enough of a burden to influence where businesses locate new plants, which are not restricted to their choice of location? The authors examine a unique establishment level dataset to find out whether the stringency of environmental regulation affects where firms locate new plants. Using a conditional logit model, they estimate the importance of difference variables in plant location choice. After controlling for the impact of factor price differentials, infrastructure and agglomeration, they find that the number of new plans commissioned in different states of India in 1994 does not appear to be adversely affected by more stringent environmental enforcement at the state level. In other words, and environmental"race to the bottom"is unlikely. They find that the level of existing business activity overwhelms all other factors affecting location decision. Reliable infrastructure and factors of production are also critical.

Suggested Citation

  • Mani, Muthukumara & Pargal, Sheoli & Huq, Mainul, 1997. "Does environmental regulation matter? Determinants of the location of new manufacturing plants in India in 1994," Policy Research Working Paper Series 1718, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1718
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    References listed on IDEAS

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    5. Timothy J. Bartik, 2002. "The Effects of Environmental Regulation on Business Location in the United States," Book chapters authored by Upjohn Institute researchers, in: Wayne B. Gray (ed.),Economic Costs and Consequences of Environmental Regulation, pages 129-151, W.E. Upjohn Institute for Employment Research.
    6. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
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    Cited by:

    1. John C. Beghin, 2000. "Environment and Trade in Developing Economies: A Primer for the World Bank's Global Economic Prospects 2001," Center for Agricultural and Rural Development (CARD) Publications 00-wp247, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Vinish Kathuria, 2018. "Does Environmental Governance Matter for Foreign Direct Investment? Testing the Pollution Haven Hypothesis for Indian States," Asian Development Review, MIT Press, vol. 35(1), pages 81-107, March.
    3. Wilson,John S. & Tsunehiro Otsuki & Sewadeh, Mirvat, 2002. "Dirty exports and environmental regulation : do standards matter to trade?," Policy Research Working Paper Series 2806, The World Bank.
    4. Yingming Zhu & Nian Wang & Ronghui Xie, 2022. "Exploring the Role of Heterogeneous Environmental Regulations in Industrial Agglomeration: A Fresh Evidence from China," Sustainability, MDPI, vol. 14(17), pages 1-17, August.

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