Beginning in 2004, official statistics display a slowdown in U.S. productivity growth. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Profit shifting increased in the mid-1990s, resulting in lower measured productivity growth. We construct value added adjusted for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994-2004, 0.24 percent annually for 2004-2008, and lower annual aggregate productivity growth rates by 0.09 percent after 2008. The adjustments are large in R&D-intensive industries, where value added increases by as much as 8 percent in the mid-2000s.

Chemical industry, Firm performance, Porter hypothesis, Regulated industries, Regulation, L25, L51,

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Opposing theoretical arguments exist regarding the effect of environmental regulation on financial performance. Some studies argue that environmental regulation constrains firms' abilities to exploit revenue-enhancing or cost-reducing opportunities. Other studies, representing the Porter hypothesis, argue that environmental regulation motivates firms to innovate, which ultimately improves financial performance. Although much of the debate focuses on long-run effects, there are also important short-run effects. This study provides empirical evidence regarding the short-run and longrun effects of Clean Water Act regulation on financial performance. To generate this evidence, we examine the effect of permitted wastewater discharge limits, on the return on sales, using panel data on publicly owned firms in the chemical manufacturing industries. We find that Clean Water Act regulation improves financial performance in both the short run and the long run with a stronger effect in the long run. These results suggest that some net benefits may be realized during a short-run transition to comply with a tighter permitted discharge limit, with additional benefits accruing to the firm in the long run because the firm has more time to innovate. (JEL K23, L25, L51, L65, Q52)