Doctoral Dissertation Research: The Effect of Energy-Saving Regulations on the Location of Manufacturing

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This doctoral dissertation research project will examine the effect of regulatory differences in regional energy savings on the location and growth of manufacturing industries in China. The concern for industrial redistribution induced by different environmental regulations across jurisdictions, namely the pollution-haven hypothesis, has long interested geographers and economists. A stricter environmental regulation may increase polluting firms' abatement costs, reduce their competitiveness, and shift them to areas with laxer regulations. This process makes areas with laxer regulations suffer from more pollution, and areas with stricter regulations lose jobs. Using industry-level and firm-level panel data from 2002 to 2010 in China, the doctoral student will investigate whether inter-provincial regulatory differences in energy saving affected the location of manufacturing industries. The analysis will focus on three aspects: two-digit industry-level and firm-level employment, firm-level location choice, and firm-level growth. The econometric analyses will be applied to all provinces for aggregate policy effects and restrictively to counties along provincial borders. The latter analyses should help identify whether there are more abrupt changes in manufacturing activities in border areas and identify differences in the geographical scope of the changes that result from a regulation change across borders. Generalized difference-in-differences models, conditional logit models, and multi-level models will be used for estimation.This research project will advance basic knowledge about the pollution-haven hypothesis and the cost of environmental regulations. It will identify common biases in measuring industry relocation by employing both industry-aggregate and firm-level data with the same sample frame using multiple estimation methods. It will compare the effect of a command-and-control policy with that of a market-based one by incorporating both in the estimation. With comprehensive datasets and estimation methods, the project will measure policy-induced industrial relocation and the relative strength of alternative policy approaches. Project findings will shed light on future energy saving, energy consumption, and natural resource consumption in different areas in China. The findings should help improve the current policy frameworks that governments in many nations can use to meet energy-efficiency targets with fewer adverse impacts. The policy implications of the decentralized regulation in nations like China are highly relevant to the impacts of international climate change policies, especially the issues of carbon leakage and loss of competitiveness for countries that joined international commitments of greenhouse gas reduction. As a Doctoral Dissertation Research Improvement award, this project will provide support to enable a promising student to establish an independent research career.