on Economic Growth. We wish to thank Naresh Kumar who processed and provided us with the satellite-based AOD measures for Mexico over the relevant period. We also with to thank Raul Tornel, Jaime Garcia Sepulveda, and Jose Domingo Morales of PROFEPA who provided us with the inspection and certification data and described in some detail the nature of their programs and the Mexican Ministry of Economics, which provided the plant-level data. We also thank seminar participants at Brown, Vanderbilt, University of Illinois, Guanajuato, ITAM, Université de Montréal,Banco de México and the Inter-American Development Bank for their comments and suggestions. All errors are ours. In this paper we develop a model of environmental regulation in a developing country that integrates industrial plant and regulator behavior and incorporates a combination of voluntary and mandatory controls. The implications of this model are then tested using a data set that has been newly assembled to examine the effects of the Mexican Clean Industry Program, in which plants are provided a Clean Industry Certificate if they are willing to establish, via a privately financed audit that they meet the legal emissions standards. In particular, by imposing some structure on the cost of participation and the cost of compliance and drawing out the resulting implications, we are able to establish using data at th
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