Effect of Environmental Decentralization on Polluting Firms in India

This paper examines the impact of environmental decentralization on the birth of polluting firms in India. It focuses on a 2006 reform of the environmental impact assessment process and adopts a triple-differences approach that compares treated and untreated sectors across states with different levels of environmental stringency. Results based on firm-level data for the period 1998-2012 show that the decentralization induced a decrease in firm births in states with stricter enforcement. The findings draw attention to the consequences of large disparities in enforcement capacity when fostering decentralization.