Environmental Regulation as a Barrier to the Formation of Small Manufacturing Establishments: A Longitudinal Examination

This paper estimates the effect of environmental regulations on the formation of small manufacturing establishments. Examining new business formations across 170 manufacturing industries over a ten-year span suggested that a greater intensity of environmental regulation is associated with fewer small business formations. There were no effects on the formation of large establishments, implying that environmental regulations put small entrants at a unit cost disadvantage. This finding is consistent with our arguments for compliance asymmetries, enforcement asymmetries, and statutory asymmetries.