Do State Environmental Protection Programs Constrain State Economic Growth?

By Kang, Joohyun | International Journal of Economic Development, July-October 2002 | Go to article overview

Do State Environmental Protection Programs Constrain State Economic Growth?


Kang, Joohyun, International Journal of Economic Development


Abstract

The purpose of paper is to examine whether state environmental programs impede economic development. Previous studies in this area omit critical political variables such as the environmental ideology of a state and employ inappropriate measures of state environmental regulation. To deal with these problems, I not only examine the impact of parties, interest groups, and administrative structures on state economy but also investigate the impact of the environmental ideology of state Representatives on economic development. The model is tested by pooled time series and the Levinson's index, which measures the stringency of state environmental regulation after controlling for the industry composition of state, is employed. The results of analysis show that stringent state environmental regulation and state expenditures for total pollution control do not substantively curb its economic growth. The results also confirm that the administrative structures of state environmental programs as well as the environmental ideology of state Representatives significantly influence state economic development.

Introduction

Goal conflict between state environmental protection and economic growth has attracted attention not only from policy decision-makers in state governments but also from scholars of public policy. The mass media and public opinion polls have emphasized potential tradeoffs between state economic growth and its environmental protection. Although the concerns of the public and policy makers regarding conflict between the economy and environmental programs have increased, scholars have not provided clear answers to the concerns that stringent state environmental programs constrain their economic growth. The empirical evidence is mixed with regard to the trade off between state economic development and environment protection.

This article empirically examines the relationship between environmental policy and economic development at the state level as indicated by patterns of new capital investment in manufacturing. Previous studies in this area suffer from several deficiencies. First, critical political variables are omitted such as environmental ideology. Another problem is that previous studies have employed inappropriate measures of state environmental regulations to test the trade off between economic growth and environmental protection.

To address these limitations, this paper develops a theory of how political parties and ideology influence economic policy and outcomes at the state level. Partisanship of policy makers and the pervasiveness of environmental ideology impact this trade off. I also emphasize what pressure state level interest groups bring to bear on decision makers to influence state economic growth.

To improve the measurement of state government's environmental regulations, instead of using indirect measures of state environmental regulations that have been employed by most environmental scholars, I use an adjusted index of state environmental regulation that measures the stringency of environmental regulation after taking into account the industrial composition of the state (Levinson, 1996). The model is tested using pooled time series analysis with panel correct standard errors on state level data from 1983 to 1994.

Controversy Over The Economic Impact Of Environmental Programs

Traditionally, scholars have argued that state environmental programs have a negative impact on economic growth, because environmental regulations impose extra production costs on firms. Since firms are required to comply with regulatory mandates, they spend more money on pollution control efforts. Increased production costs resulting from compliance with states environmental regulation lead to higher prices for products. Regulation also can reduce the competitiveness of products in the market, decrease outputs of the firms and limit the economic development in states (Chrisiansen and Haveman, 1981; Siegel and Johnson, 1993; Goez, Ready and Stone, 1996). …

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