Moving with the wind: Environmental regulation avoidance and the adjustment of firms’ location

Abstract

Polluting firms typically relocate to avoid stringent environmental regulations. Based on China's Two Control Zones (TCZ) policy, we examine the impact of environmental regulation on firms' location decisions. The results show that in the upwind TCZ near interprovincial areas, the distance of polluting firms to the border is significantly reduced after environmental regulation is tightened. This finding provides new evidence for the need to strengthen regional joint prevention and control to prevent trans-regional pollution transfer.

Keywords

• Environmental regulation
• Firm location
• Pollution free-riding