Environmental spillovers and local agglomeration: Evidence from large plant openings

Abstract

This paper investigates the impact of agglomeration on the spillover effects of corporate environmental performance by exploiting quasi-natural experiments involving Million Dollar Plant (MDP) openings. Analyzing plant-level toxic emissions and pollution prevention data from the U.S., we find that large MDP openings prompt neighboring incumbent plants to emit more toxic chemicals compared to those from facilities in runner-up counties. Neighboring plants in winning counties also reduce their pollution control measures. Prior to the MDP events, we observe comparable trends in pollution emissions and balanced sample characteristics. Furthermore, the increase in toxic emissions is more pronounced in regions with lenient environmental regulations. The findings suggest that increased financial constraints, due to higher production costs from local agglomeration, may drive these negative environmental externalities.