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

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.