Environmental protection and economic growth: What do the residuals tell us?

Conventional wisdom implies economic growth and environmental quality are incompatible policy objectives. Recent empirical evidence, however, suggests stringency of environmental regulations are only weakly (or not at all) associated with decreased manufacturing activity. This paper uses more recent (1982-1994) state-level panel data to rest if environmental regulations affect manufacturing employment. Estimation results from our three-stage sample selection panel data model suggest that state environmental regulations adversely affect job growth in three of the four industries analyzed.