Do state environmental protection programs constrain state economic growth?
Kang, Joohyun
Abstract
The purpose of paper is to examine whether state environmental
programs impede economic development. Previous studies in this area omit critical political variables such as the environmental ideology of a
state and employ inappropriate measures of state environmental
regulation. To deal with these problems, I not only examine the impact
of parties, interest groups, and administrative structures on state
economy but also investigate the impact of the environmental ideology of
state Representatives on economic development. The model is tested by
pooled time series and the Levinson's index, which measures the
stringency of state environmental regulation after controlling for the
industry composition of state, is employed. The results of analysis show
that stringent state environmental regulation and state expenditures for
total pollution control do not substantively curb its economic growth.
The results also confirm that the administrative structures of state
environmental programs as well as the environmental ideology of state
Representatives significantly influence state economic development.
Introduction
Goal conflict between state environmental protection and economic
growth has attracted attention not only from policy decision-makers in
state governments but also from scholars of public policy. The mass
media and public opinion polls have emphasized potential tradeoffs
between state economic growth and its environmental protection. Although
the concerns of the public and policy makers regarding conflict between
the economy and environmental programs have increased, scholars have not
provided clear answers to the concerns that stringent state
environmental programs constrain their economic growth. The empirical
evidence is mixed with regard to the trade off between state economic
development and environment protection.
This article empirically examines the relationship between
environmental policy and economic development at the state level as
indicated by patterns of new capital investment in manufacturing.
Previous studies in this area suffer from several deficiencies. First,
critical political variables are omitted such as environmental ideology.
Another problem is that previous studies have employed inappropriate
measures of state environmental regulations to test the trade off
between economic growth and environmental protection.
To address these limitations, this paper develops a theory of how
political parties and ideology influence economic policy and outcomes at
the state level. Partisanship of policy makers and the pervasiveness of
environmental ideology impact this trade off. I also emphasize what
pressure state level interest groups bring to bear on decision makers to
influence state economic growth.
To improve the measurement of state government's environmental
regulations, instead of using indirect measures of state environmental
regulations that have been employed by most environmental scholars, I
use an adjusted index of state environmental regulation that measures
the stringency of environmental regulation after taking into account the
industrial composition of the state (Levinson, 1996). The model is
tested using pooled time series analysis with panel correct standard
errors on state level data from 1983 to 1994.
Controversy Over The Economic Impact Of Environmental Programs
Traditionally, scholars have argued that state environmental
programs have a negative impact on economic growth, because
environmental regulations impose extra production costs on firms. Since
firms are required to comply with regulatory mandates, they spend more
money on pollution control efforts. Increased production costs resulting
from compliance with states environmental regulation lead to higher
prices for products. Regulation also can reduce the competitiveness of
products in the market, decrease outputs of the firms and limit the
economic development in states (Chrisiansen and Haveman, 1981; Siegel
and Johnson, 1993; Goez, Ready and Stone, 1996).
Another negative impact of state environmental protection programs
results because they can limit the entry of new firms (Dean and Brown,
1995). The barrier for potential new firms is a severe problem, since
potential new firms would feel heavy burdens due to the complex
technical, administrative, and legal issues (Brock and Evans, 1986) as
well as increased production costs. Therefore, the barriers set up by
state government's environmental requirements that discourage new
firms from entering the markets, reduce the competitive environments of
firms and have negative impacts on growth of state economies.
Although previous studies have focused on the negative aspects of
state environmental programs on their economies, the results of
empirical analysis do not always support this proposition. In fact, Hall
(1994) finds that states that protect their environments have healthy
economies. The study by Levinson (1996) does not find any significant
negative relationship between different state government regulations and
the location choices of manufacturing firms. Ringquist and Feiock (1999)
also do not find that the air quality programs of state governments have
a negative impact on economic development.
Based on the controversial results of empirical studies, several
revisionist scholars explain how state environmental control programs
may not limit their economic development. First, in general, the
environmental programs of state governments can minimize the impact of
negative externalities (pollution of state environment) which are caused
by market failures. Since state environmental programs improve their
environmental quality, state governments can attract more firms. By
attracting more new firms to their states, states can enjoy economic
growth. Goetz, Ready and Stone (1996) and Farr (1984) find that
pollution problems are an important factor for firm location decisions.
Goetz, Ready and Stone (1996) also argue that improved environmental
quality in states would have a positive impact on worker's
productivity and may lower the production costs of firms.
In particular, the environmental regulations of state government
can enhance the productivity of firms. Given these governmental
regulations, firms try to develop new technologies and change production
processes to reduce environmental pollution. As a result of adopting new
technologies and changing production lines, firms not only reduce the
level of pollution they produce, but also increase their efficiency
(Gray and Shadbegian, 1998).
According to the arguments of revisionists, the states with strong
environmental regulations induce a positive impact on state economic
growth over a long- term period, although in the short-term, it may
produce a negative impact on state economic growth (Feiock and Steam
2001). Also, if state governments increase their expenditures for air,
water, and waste pollution control, it would have a positive impact on
their economic growth since better environmental conditions attract more
firms. To examine the controversy over the economic impacts of
environmental programs, two hypotheses, the economic impacts of state
environmental regulations and expenditures for pollution control, are
tested;
Hypothesis 1a: Stringent environmental regulation by state
government does not have a negative impact on state economic growth.
Hypothesis 1b: Total State expenditures for pollution control do
not have a negative relationship with state economic development.
The Impact Of Industry Interests
The theories of interest groups are rooted in the pluralist perspective of policy making. For David Truman (1951) and Robert Dahl (1956), the major virtue of the interest group system is that people
have freedom to organize groups to reflect their interests. Interest
groups provide a link between individuals and governments. Legislative
and executive institutions were created to serve the people and respond
to their preferences. Interest groups are formed to advocate their
points of view, pushing representatives to present their issues in
legislatures and pushing bureaucrats to administer the laws.
Interest groups occupy a very uncomfortable place in democratic
theory because their activity is frequently against the will of the
majority. One problem is that one side of an issue usually has an easier
time organizing and raising money than the other side. There is also a
class bias in interest groups. As E.E. Schattschneider (1960) put it,
"The flaw in the pluralist haven is that the heavenly chorus sings
with a strong upper-class accent. Probably about 90% of the people can
not get into the pressure system." He argues that politics is
dominated by organizations representing businesses and the
upper-classes.
Based on Schattschneider's (1960) arguments, many scholars
conclude that business interest groups dominate politics, while the
nation's unorganized poor and workers are excluded. People in upper
and middle-income classes are more willing to join groups. Politicians
are more concerned about business investments than about the opinions of
rank-and -file citizens. This means that corporations "have rights
that we do not have. Their political impact differs from and dwarfs that
of the ordinary citizen" (Lindblom, 1977). Manufacturing groups are
considered the most influential interest groups in state politics
(Thomas and Hrebenar, 1991). Therefore, if the power of the state
manufacture industry is strong, then industry groups can exert their
power in the decision-making processes of state government. In the
response to pressures from the manufacturing industry, state government
policy is oriented toward growth promotion. The second hypothesis tests
the impact of business interest groups on state economic development;
Hypothesis 2: There is a positive relationship between the strength
of state manufacturing groups and state economic growth
Party Control
Parties, similar to interest groups, aggregate and articulate
interests in the political decision making processes. The major
difference between parties and interest groups is that parties provide
voters with alternative conceptions of the "public good" so
that people can make informed choices about government's policies
they want (Schattschenider, 1960).
Traditionally, in the America political system, the Republican
Party has been based on a more conservative ideology that promotes
economic development and supports small government and less restriction
on business. The Democratic Party, based on more liberal ideology,
emphasizes social change such as welfare policy, and thus regulation of
private activity to correct market failures. If state governments are
under the control of the Republican Party, the expected government focus
is on economic development. Therefore, the state governments which are
under control of Republican Party reduce the expenditures for pollution
control and increase their spending for economic growth. State
governments controlled by the Republican Party may also reduce the
strength of environmental regulations in general. If the Democratic
Party controls state government, the situation is opposite. State
governments controlled by the Democratic Party should increase their
spending on environmental programs and increase the strength of
environmental regulations on firms.
Since both governors and state legislatures have significant
influences on state policymaking processes, I examine the impact of the
partisanship of both governor and states legislature on economic
development on following hypothesis. If both Senate and House and the
governorship of a state are controlled by Republican Party, economic
oriented public policies are more preferred and the state should enjoy
more economic development.
Hypothesis 3: States with Republican Party control of both houses
of the legislature and the governorship have greater economic growth
than other states.
Environmental Ideology of State Representatives
The party control of state government may signal the general
tendency of state government policy. However, there is considerable
variation among the positions of elected officials on environmental
policy even when they share party affiliation. There is regional and
individual variation on the ideology spectrum. For example, the
ideological position of Democrats in Alabama is more conservative than
that of Democrats in New York. In other words, although representatives
may have the same party affiliation, they differ in the degree to which
they support environmental policies.
Despite its theoretical importance, environmental values and
ideology have been unexamined in previous work. This article introduces
an approach to measuring states environmental values through assessing
the environmental record of the State's delegation to the U.S.
Congress that is elected from the state. Environmentalism scores of
state delegations to the U.S. Senate and House are derived from
environmental voting records calculated by the League of Conservation
Voters (LCV) (Gray, 1997; Levinson, 1999). States electing officials
with high LCV scores indicate a pro-environment ideology. In states with
higher LCV scores, public officials may be resistant to economic
development that might threaten environmental quality. Therefore, I
anticipate that states with higher environmental scores will have slower
economic growth than other states;
Hypothesis 4: There is a negative relationship between the LCV
scores of Senators and House Representatives and state economic growth.
Administrative Structure
In understanding trade offs between environmental protection and
economic growth it is not just politics, but also administrative
structures of state environmental programs that are important (Lester,
1989; Feiock and Stream, 2001). Borrowing from the theories of
transaction cost (North, 1990), Feiock and Stream (2001) argue that
"environmental regulation and pollution abatement subsidy programs
may be offered within an institutional context that itself is a
significant determinant of the prospects for growth ... Certain forms,
structures, and processes of state regulation and environmental
management functions may reduce uncertainty in the business
environment"(Feiock and Stream, 2001: p. 13).
Lester (1989) argues that unified organizational structures reduce
transaction costs, in particular, coordination cost and information cost
of organizations. Lester et al. (1983) also argue that, by minimizing
the coordination cost and information cost among different bureaucratic agencies, consolidated organizations (Super Agency Consolidation) help
environmental policy making and lead to positive impacts on state
economic growth. Therefore, I expect that consolidated environmental
programs reduce transaction cost and contribute to economic growth;
Hypothesis 5a: A state whose environmental programs are controlled
in a super agency which consolidates environmental and natural resources
programs may enjoy a healther economy.
Like super agency consolidation, a strategic environmental plan
provides another form of unified organizational structure. A strategic
environmental plan integrates pollution prevention with regulatory
programs and thus can reduce uncertainty and transaction costs.
Therefore, I expect that environmental strategic plan which minimizes
transaction costs have positive impacts on states economic growth;
Hypothesis 5b: A state adopting strategic plan of environmental
protection may enjoy a healthier economy.
State governments' regulatory capacity is also an important
component of a state's administrative structure for environmental
programs. Davis and Lester (1989) argue that states that gain primary
authority to manage their environmental programs under the Resource
Conservation and Recovery Act of 1976 (state primacy under RCRA)
efficiently carry out their regulatory and environmental programs. I
expect that efficiency gains through state primacy under RCRA would
transfer to states economic growth.
Hypothesis 5c: A state with primary authority for controlling its
environmental programs under the Resource Conservation and Recovery Act
of 1976 may enjoy good economic conditions.
To properly test these hypotheses, concentration of manufacturing
gross state product is included as control variable. The new capital
investment in manufacturing is directly affected to the degree to which
the state economy relies on the manufacturing industry. A state whose
economy relies heavily on manufacturing industries would allot more
money to new capital investment in manufacturing than other states.
Measurement And Model Estimation
Based on theories and hypotheses, I specify the model below. The
units of analysis are states over years. That is, data were collected
for the 50 states for the time period 1983 to 1994. The model is
estimated as pooled time series with panel corrected standard errors.
The model specification is as follows.
New capital investment in manufacture i,t=[beta]0+[beta]1 State
regulation i,t +[beta]2 State Expenditures for total pollution control
i,t +[beta]3 Party Control i,t + [beta]4 Environmental Ideology of
Senate and House i,t+[beta]5 Strength of state industry groups i,t
+[beta]6 Super agency consolidation i,t +[beta]7 State primacy under
RCRA i,t + [beta]8 Strategic plan of environmental protection i,t +
[beta]9 Concentration of Manufacturing Industry i,t + Errors i,t
Where the i and t subscripts denote the geographic unit (50 states)
and year observed, respectively.
The dependent variable, New capital investment in manufacturing, is
an indicator of state economic development and is measured by annual new
capital investments in the manufacturing sector after controlling for
the manufacture industry size of state. (1) I use the numbers of worker
in state manufacturing industry as measurement of state manufacture
industry size
Two aspects of state environmental programs are particularly
salient-the strength of state government regulations, and state
government expenditures for total pollution control. The variable of
State regulation is measured as an adjusted index of state environmental
regulatory stringency constructed by Arik Levinson (1997). Previous
measures of state environmental regulations such as pollution abatement
costs and expenditures fail to adjust for industrial composition in
states. Taking into account industrial compositions of states is
important since states which have many industries which emit pollution
would spend more money on pollution control regardless of their
regulations' stringency. Levinson (1997) argues that the
industry-adjusted index of state environmental regulatory stringency is
superior to previous measurements since it controls for industrial
compositions and is also calculated over time. This adjusted index of
state environmental regulatory stringency is a more appropriate measure
for comparison both among states and within states over time. The
variable of State Expenditures for total pollution control measures
total state government spending on pollution control. The measure
aggregates state pollution control expenditures for air, soil, waste and
water pollution control
Data for directly measuring the strength of manufacturing industry
groups in each state are unavailable since manufacturing industry groups
do not make their membership data public. This article follows the
procedures of other scholars who measure the strength of manufacture
industry indirectly (Feiock, 1994; Ringquist and Feiock, 1999). The
variable of Strength of state industry groups is measured by the
percentage of gross state product attributed to manufacturing industry
for each year during the period of 1983 to 1994. A measure of
environmental group strength is not included here because no measure is
available on an annual basis for the study period.
Partisan effects on state economic development are measured with a
Party Control variable coded as 1 if Republican parties control both
houses of legislatures and the governorship simultaneously. If
Democratic parties control both houses of legislatures and the
governorships simultaneously, it is coded as minus one (-1). Divided
party control is coded as zero.
Environmental Ideology of Senate and House is a variable referring
to the environmental ideology scores of elected officials of state
government. It is measured as averaged Leagues of Conservation Voters
(LCV) scores of House Representatives and Senators.
To measure administrative structures which minimize transaction
costs, three indicators are employed. Super agency consolidation
measures whether control of state environmental programs is centralized in a super agency that consolidates environmental and natural resource
programs. State environmental programs controlled in a super agency are
coded as 1 and zero otherwise. The variable of State primacy under RCRA
measures whether state governments have gained primary authority to
control their environmental programs under the Resource Conservation and
Recovery Act of 1976. If they are primary authority, they are coded as
1, otherwise zero. The strategic plan for environmental protection
variable measures whether state governments adopt strategic
environmental plans. If states adopt strategic environmental plan, they
are coded as 1, otherwise zero. The control variable Concentration of
Manufacturing Industry is measured by state manufacturing gross product.
Findings
The result of pooled time series analysis is presented in Table 1.
In Table 1 the sign of all independent variables that have significant
effects on new capital investment, with the exception of strategic
planning, are in the directions predicted. Moreover, state regulation
and state expenditures do not have a statistically significant effect
suggesting tradeoffs between regulation and growths are not large enough
to be statistically significant. The coefficient of state expenditures
for total pollution control is almost zero. This result suggests that
while stringent environmental regulation does not boost the state
economy, neither does it seriously harm economic growth.
Which party controls state government has considerable impact on
patterns of state economic growth. Where the Republican Party controls
both houses of legislatures and the governorship firm investments in new
capital is $530 higher. Environmental ideology also has a significant
impact on its economy. A state with lower environmental scores of
elected officials enjoys a better economy than other states. The impact
of state interest groups on state economic growth is also important. The
analysis confirms the hypothesis that a state with strong organized
manufacturing industry groups enjoys economic development.
Some evidence is found that administrative structures of state
environmental programs have significant impacts on state economic
growth. By reducing transaction cost, coordination cost and information
cost in state government organizations, unified administrative
structures of environmental programs induce economic growth. Firms in
states with a super agency that consolidates environmental and natural
resource programs invest $2, 719 more in new capital investment in
manufacturing than firms in states without centralized regulation.
Holding other variables constant, a state government that has primary
authority of environmental programs under the Resource Conservation and
Recovery Act of 1976 will have $994 dollars more new capital investment
in manufacturing. Although agency consolidation and primacy under RCRA
have positive impacts on state economies, state strategic plans for
environmental protection do not. States that adopted a strategic plan of
environmental protection actually has less new capital investment. One
possible reason strategic environmental protection plan does not produce
any efficiency is that the adoption of a plan does not necessarily
guarantee strategic management is practiced effectively (Feiock and
Stream, 2001).
Discussion
The empirical results find support for elements of both
conventional beliefs, which argue the negative impact of environmental
programs on the state's economy and revisionist arguments which
pointing out the positive impact of environmental program on state
economic growth. The most important finding is that stringent state
environmental regulation and state government expenditures for total
pollution control did not substantially impede economic development.
These findings have important implications for the controversy with
regard to the trade off between environmental protection and economic
development.
Another key finding is the considerable impact of environmental
ideology and partisanship on state economic growth. While previous
studies examine the party impacts on state economies, environmental
values and ideology have been unexamined. This article provided a unique
approach to measuring states environmental values though assessing the
environmental record of the State's delegation to the U.S.
Congress. Using the LCV score this article demonstrates the importance
of state environmental ideology.
This article also advances the debate regarding how the
administrative structures of state environmental programs influence
state economic development (Feiock and Stream, 2001). A unified, rather
than fragmented structure has a positive impact on state economic
development, because it minimizes transaction costs for different
administrative organizations. Similar logic can be applied to state
government as primary authority of environmental programs. The authority
of environmental programs that is endowed to state government also
improves state economic condition by reducing transaction costs of
communications, implementation, and coordination between federal and
state governments. Adopting a strategic plan may or may not reduce
transaction cost in a similar way. Adoption of a new plan does not
guarantee it thus will be binding. Therefore, implementation of
environmental programs as well as reforming administrative structures
need to be investigated in future research.
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Notes
(1.) Manufacturing firm establishment might be a preferred
dependent variable, but annual state level data on manufacturing firm
establishments is unavailable. Therefore, New capital investment in
manufacture is employed to estimate the model in this article.
Biographical Sketch
Joohyun Kang (jjk0475@garnet.acns.fsu.edu) is a doctoral student of
Political Science at Florida State University.
Joohyun Kang
Department of Political Science
Florida State University
Table 1
The result of pooled time series analysis
Std
New capitial investment in Coefficients Error
manufacturing
State regulation -0.004 0.088
State Expenditures for total
pollution control -0.00000008 0.000
Environmental Ideology of
Senate and House -0.243 *** 0.053
Party Control 5.317 *** 2.071
Strength of state industry 167.929 *** 12.513
groups
Super agency consolidation 27.185 *** 2.659
Strategic plan for environ- -8.746 *** 3.353
mental protection
State primacy under RCRA 9.94 *** 3.672
Concentration of manufactu- 0.0003 *** 0.000
ring industry
Intercept -9.302 5.132
note: *** p<.01, ** p<.05 , and * p<.1 (two-tailed test)
