RESEARCH PAPER NO. 881

ENVIRONMENTAL COMPLIANCE BY FIRMS IN THE MANUFACTURING SECTOR IN MEXICO

LATA GANGADHARAN

OCTOBER 2003

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

To date, little empirical evidence exists to help regulators understand why some firms comply even when there is little financial incentive to do so and others continually violate environmental regulations. This paper examines data on compliance with environmental regulations within the manufacturing sector in Mexico. The probability of complying depends, among other factors, on the kind of management practices of the firm and the level of environmental training. Some firms in the manufacturing sector over-comply with regulations.  Our results show that providing environmental training to employees in the firm increases the probability of over-compliance. Local community has a positive impact on over-compliance however the magnitude of its impact is not as strong as is often suggested in the literature.