How do environmental firm relocation policies affect firms, workers, and environmental quality?

Private sector productivity growth has increased significantly since the early 1990s in India (Bollard et al, 2013). An important proportion of these productivity gains have been attributed to lower regulatory barriers and increased access to trading opportunities. A significant source of regulation in India that has been relatively understudied in terms of its impacts on firm outcomes, is environmental regulation. A comprehensive welfare analysis of the gains to such policies comprises accounting for reduced pollution and better health outcomes, as well as the potential costs on industries.

Air and water pollution levels have increased significantly in recent years in India, in part due to increases in industrial activity. At present, 14 of the 15 most polluted cities in the world are in India (WHO 2016). High levels of particulate matter alone cause a loss of 650 million life-years for the 180 million people living in about 180 Indian cities (Greenstone et al, 2015).

India has several environmental regulations in place, though the enforcement of these regulations has been heterogeneous over time. Beginning in the late 1990s, largely as a result of public interest litigation, several states and cities implemented action plans to reduce pollution. A primary means to reduce pollution mentioned in these action plans was the relocation of polluting industries to certain designated areas. Industrial relocation policies to combat pollution are an increasingly popular policy tool across the developing world, such as China’s industrial relocation policy to move polluting industries outside of Beijing city limits by 2017. Location restrictions that seek to limit pollution exposure also have a long history in the US, starting with the first zoning laws introduced in the early 20th century in New York in part to improve environmental quality (Wilson et al, 2008).

This project will use quasi-experimental methods to evaluate the impacts of industrial relocation policies in several Indian cities which mandated the closure of certain industries (classified as “polluting industries”) to certain designated areas. They will be evaluated on outcomes such as firm location, pollution agglomeration, and residential expansion.

Understanding the relative impacts on stakeholders (such as firms and workers) can help inform policies that are not only effective in achieving their environmental objectives such as pollution reduction, but can also aid in designing compensation schemes for affected workers and firms.