Industrial Productivity, Urban Growth, and Air Quality Regulation

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This project has three interrelated parts, with a unifying theme being the dynamics of patterns of location and agglomeration of plants, industries, and populations as affected by agglomeration economies, geography, and regulation. Another unifying element is the data utilized. The first part examines the effects of environmental regulation on major polluting industries, where, apart from studying regulatory effects on location and industrial structure, a focus concerns plant operating efficiencies in different locations, over time, and by plant size and age. Capital intensities across plants are compared by age before and after the advent of strong environmental regulation and between regulated non attainment (`treatment`) and less or unregulated attainment (`control`) areas. Quasifixed factor cost functions are estimated so as to be able to calculate shadow marginal products of capital and efficient operating sizes. Issues to be analyzed include to what extent environmentally induced investments contribute to productivity and to what extent and at what cost plants after regulation and in non attainment areas are relatively overcapitalized and relatively under sized. The second part of the proposal examines the spatial evolution of high tech and traditional industries and the effects on plant productivity of local static and dynamic externalities. Spatial evolution of distributions of high tech employment across cities are modeled as a stationary first order Markov process. Apart from studying issues of `convergence,` the object is to determine what urban site characteristics define good sites for what industries. To what extent are urban high tech `miracles` predictable? Site characteristics include predetermined city population and employment characteristics, exogenous geographic characteristics, and characteristics of neighboring cities. If, for example, base period metro area population is a key characteristic, there remains a question of why. To answer this question, urban externalities will be examined to determine if they are static versus dynamic and if they are ones of localization versus urbanization. The third part focuses on urban evolution. The theory combines the urban elements of local scale economies versus diseconomies yielding multiple finite size cities in an economy, with exogenous national population growth and endogenous economic growth through human capital investment involving localized knowledge spillovers. Apart from modeling urban evolution, the idea is to study evolving income inequality across cities. At any instant, different goods and city types will generally have different equilibrium per person human capital levels and real observed incomes. Moreover workers may sort across cities by ability levels. A key issue concerns the interaction among localized knowledge spillovers, parental education, inter generational transmission of ability, urban production patterns and income inequality. The empirical part examines urban evolution in the USA from 1900 to the present. The research uses three major data sets. First is the Longitudinal Research Database from 1963 1994 to study plant productivity, metro area industrial environments, and environmental regulation (combined also with Pollution Abatement Costs and Expenditures data of the Census Bureau). Second is county level data set for 19001990 for all USA counties consistently defined over time, covering Census population and industrial characteristics and incorporating geographic characteristics. Finally there is annual County Business Patterns data for 1977 1995, giving industry detail on all private employment, combined with Census data on government employment and urban characteristics.