Are there measurable effects of Environmental Regulations on Firms location choices? A literature review and application to the commercial hog industry in the U.S.

Evolution of analysis of business location choice Bartik (1985) Business location decisions in US, estimates of effects of Unionization, taxes and other characteristics Used conditional logit model comparing sites for new businesses Why new firms? Findings?

Findings were consistent with what would expect, profit maximizing firms located where costs minimized. Found unionization and higher taxes to have an effect. Stringency of environmental regulation not found to be significant in location choice Did not distinguish between types of firms in survey

Schwab and Mcconnell (1990) The impact of environmental regulation on industry location: the motor vehicle industry Different from previous study in that looked at specific industry Found little effect on location choice due to environmental regulation. Some effect at margin for those areas in non-compliance where ENFORCEMENT would be a concern In general, no strong effects were found

Levinson (1996) Environmental regulations and manufacturer’s location choices: Evidence from the Census of Manufactures Looked at survey of abatement costs and census to compare stringency of regulations on location choices between states Again, not industry specific but general firm

Again found no effect of environmental regulations even when separated out “clean” vs “dirty” industries. All studies seem contrary to intuition would expect increased regulation= increased costs=would cause firms to move and create “race to bottom” of regulation as regions compete- not appearing in analysis

Why is no effect being found? Estimate of cost for compliance with environmental regulation are not small, from 4-16% (Levinson) of initial investment costs Small degree of positive effect has even been found. With increased regulation, it is suggested there is increased certainty of future market conditions attracting business

Other interpretations of results Possible that regulations not the issue but enforcement is of more importance Regulations can be attractive to large firms who are more mobile and can absorb costs more easily. Regulations serve as barrier to entry Firms are still minimizing costs, just not as concerned with environmental costs (at least during period of these studies)

Commercial Hog Industry Good industry to explore for effects “dirty” Mobile- especially compared to power plants and large auto manufacturers Changes in industry parallel period of increased regulation in US water and air pollution

Roe, Irwin, Sharp (2000) modeled spatial structure of Interior US Hog production from Found # of people, price of land, cost of labor significant to movement in industry Again found no environmental considerations significant- Did not look at expansion, relocation, or new firms in non-traditional areas Just looked at traditional hog producing states

Entropy studies A study in 1997 showed some change in relative concentration of hog farms in traditional hog producing states Showed significant shifts in concentration in non- traditional states (specifically North Carolina) Why would hog production increase dramatically in North Carolina while it stayed relatively constant in traditional areas?

data wasn’t available to include Iowa at time this analysis was done

Can expect with increased concentration combined with an increase in numbers there to be an increase in the environmental effects-

Trends Table 15 Hogs & pigs-inv, litters & sales: Iowa Total of item Hogs and pigs (farms)17,24331,79036,670 Hogs and pigs (number)14,651,91914,153,15812,983,074

In North Carolina, Hurricanes in 1999 caused problems with waste and overflow polluting rivers in high production areas

Changes in industry not reflected in studies Some European Firms have moved hog production to the US, in part because of environmental regulation in Europe Analysis of movement into non-traditional areas of production now, more into the west with areas of low population Increased involvement and organization of groups to discourage location of these firms

Not reflected in studies (cont) Number of lawsuits filed to prevent location of large facilities -- Enforcement through lawsuits is now taking place where has not in the past. Over 14 filed in Iowa alone this past year to curb growth of large production facilities

Conclusions from reading literature Regulation without enforcement has not caused firms to consider environmental issues when making decisions There is talk in literature of firms locating in areas with little enforcement but little empirical data to support that this “race to the bottom” is happening

Add’l Conclusions At least with respect to the hog industry, with more current data, (most recent was 1997) I think that one may find increased enforcement of environmental regulations and public concern are now having an effect on location choice Ag census data is not available yet, but trends and industry literature suggest this is ocurring. Greater concentration creates additional problems but could allow for easier enforcement