Environmental regulation and productivity growth: An analysis of US manufacturing industries

We show that traditional measures of productivity change that ignore the unproductive nature of pollution abatement capital within the production process are likely to underestimate the true productivity gains that most manufacturing industries are able to generate in any given year. While the average bias of traditional measures is not large in absolute terms, the bias can be substantial for industries with relatively large pollution abatement capital expenditures. We also find that environmental regulation has a non-trivial adverse effect on productivity change, lowering productivity growth by roughly 0.3% across all industries, and by more than 1% for some industries.