Economic Growth and Environmental Regulations : A Simultaneous Equation Estimation

This study employs a four-equation regional growth model to examine the simultaneous relationships among changes in population, employment, per capita income, and environmental regulations for the 420 counties in Appalachia. The results reveal that initial conditions for environmental regulations are negatively related to regional growth factors of change in population, per capita income, and total employment. From this, it is inferred that the diversion of resources from production and investment activities to pollution abatement is inadvertently transmitted to other sectors of the economy, thereby resulting in a slowdown of regional growth. It also finds robust evidence that shows that changes in environmental regulations positively influence changes in population, total employment and per capita income. Thus, it is parsimoniously concluded that in the long run, environmental regulations are not detrimental to economic growth