Previous empirical studies have uncovered little evidence that environmental regulations reduce
industrial activity. This paper presents new evidence on the effects of these regulatory interventions by
using the 1970 and 1977 Clean Air Act Amendments’ division of counties into “high” and “low”
regulation categories. Polluting manufacturers in the high regulation counties were subject to
substantially stricter regulations than those in low regulation counties. The evaluation strategy is to
assign the more than 1.75 million plant observations from the microdata underlying the 1967-1987
Census of Manufacturers to precisely defined “regulated” and “unregulated” groups, based on their
county’s regulatory status, their emissions of the regulated pollutants, and the year. After controlling for
a wide variety of factors including plant level characteristics, unrestricted industry shocks, and
unrestricted county shocks, the estimates suggest that in the first 15 years after the Amendments became
law (1972-1987), high regulation counties (relative to low regulation ones) lost approximately 100,000
jobs, $50 billion in capital stock, and $30 billion (l987$) of output in pollution intensive industries.
Although substantial in affected counties, the “lost” manufacturing activity associated with these
regulations was relatively modest when compared to the size of the entire manufacturing sector. These
estimated “losses” are larger than those found in the previous literature. This difference can be explained
by the previous literature’s inability to control for unobservable factors that are correlated with
regulation and the Amendments’ simultaneous regulation of multiple pollutants.