Article

The Annals of Regional Science

, Volume 35, Issue 4, pp 523-546

First online:

The confusing relationship between environmental policy and location behaviour of firms: A methodological review of selected case studies

  • Tim JeppesenAffiliated withDepartment of Economics, University of Southern Denmark, Odense Campus, Campusvej 55, 5230 Odense M, Denmark (e-mail: tij@sam.sdu.dk)
  • , Henk FolmerAffiliated withCentER, Tilburg University and Department of General Economics, Wageningen University, Hollandseweg 1, 6706 KN Wageningen, The Netherlands (e-mail: henk.folmer@alg.ech.wag-ur.nl)

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Abstract

The literature on the effects of environmental policy on the location behaviour of firms has so far failed to draw any firm conclusions. Different studies have shown that the effects may be zero, negative or positive. They always tend to be small. This paper argues that methodological issues form a major explanation for the contradictory results. It discusses the methodological strengths and weaknesses of data collection and secondary data analysis. Moreover, several typical studies are reviewed both in terms of methodology and findings. The paper finds that methodological issues tend to affect the results. The main substantive result is that at the present intensity of environmental policy plant closing is most likely to result, followed by reduced location of new firms whereas relocation is the least likely response. The results have to be interpreted with caution, however, because of methodological problems inherent to most studies.

JEL classifications: B41 C51 D21 Q28 R38