The geography of environmental regulation: Plant-level emissions data

Abstract

We investigate how geographic proximity between environmental regulators and firms affects corporate polluting behavior through resource constraints and information asymmetry. Using plant-level emissions data from China, we find that firms pollute less when they are located closer to regulators. Proximity is more closely connected to pollution when regulators are subject to greater financial constraints, more severe manpower shortages, and higher transportation costs related to inspection. These results provide support for a resource constraint channel. There is less evidence that proximity affects corporate pollution through an information asymmetry channel. A heterogeneity analysis shows that the impact of geographic proximity on plant pollution is weaker in regions with greater public attention to environmental issues. Overall, our results have implications for the strategic deployment of resources for environmental enforcement.