U.S. Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms

Hanna, Rema (2010)


Hanna, Rema. 2010. “U.s. Environmental Regulation And Fdi: Evidence From A Panel Of Us-Based Multinational Firms”. American Economic Journal: Applied Economics 2 (3): 158-189.
This paper measures the response of US-based multinationals to the Clean Air Act Amendments (CAAA). Using a panel of firm-level data over the period 1966 – 1999, I estimate the effect of regulation on a multinational’s foreign production decisions. The CAAA induced substantial variation in the degree of regulation faced by firms, allowing for the estimation of econometric models that control for firm-specific characteristics and industrial trends. I find that the CAAA caused regulated multinational firms to increase their foreign assets by 5.3 percent and their foreign output by 9 percent. Heavily regulated firms did not disproportionately increase foreign investment in developing countries.