Impact of Air Quality Regulations on Entrepreneurial Activity
The objective of this paper is to examine the impact of NAAQS non-attainment status on the entrepreneurial activity in a metropolitan statistical area (MSA). Most of the existing research on the relationship between non-attainment and the financial robustness of areas focuses on the big polluters (e.g., plastics, organic chemicals, steel smelting and refining, etc.), and examines how many of the big polluters failed or relocated, measured by the change in the number of plants/businesses when an area moved from attainment to non-attainment. Our paper will use a 306 MSA panel data set over the 1989-2003 timeframe, to address the question more comprehensively by looking at all industries, not just a targeted few polluters. Controlling for other time-variant confounding effects, such as population growth, per-capita income, tax rate changes, minimum wage rates, energy costs, regional inflation measures, and spatial phenomena (such as, natural disasters) we isolate the effect of non-attainment status on large polluters as well as the linkage industries. We show that if an area is designated nonattainment status in a particular year, it leads to a decline in the total number of business starts in the MSA in the following year. We also determine whether the impact of nonattainment varies across businesses of different sizes.