AcademicsJournal

Air Pollution and Manufacturing Firm Productivity: Nationwide Estimates for China

Shihe Fu, V. Brian Viard, Peng Zhang

Economic Journal Forthcoming

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We provide nationwide causal estimates of air pollution’s effect on short-run labour productivity for China’s manufacturing sector from 1998 to 2007. Using thermal inversions as an instrument, we estimate a one 𝜇g/m3 decrease in PM2.5 increases productivity by 0.82% (elasticity of -0.44). Increased hiring attenuates the elasticity to -0.17. Using the differential effect of China’s WTO accession on coastal versus inner regions, we estimate a pollution elasticity of 1.43 with respect to output. Simulating a dynamic general-equilibrium model yields an output elasticity of -0.28 with respect to PM2.5. An exogenous 1% decrease in PM2.5 nationwide increases GDP by 0.039%.

JEL-Codes: Q51; Q53; D62; R11

Keywords: air pollution; productivity; environmental costs and benefits; firm competitiveness

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