Air Pollution and Manufacturing Firm Productivity: Nationwide Estimates for China

36 Pages Posted: 21 Apr 2017 Last revised: 2 Jun 2018

See all articles by Shihe Fu

Shihe Fu

Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE)

V. Brian Viard

Cheung Kong Graduate School of Business

Peng Zhang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: May 20, 2018

Abstract

We provide nationwide estimates of air pollution's effect on short-run labor productivity for manufacturing firms in China from 1998 to 2007. An emerging literature estimates air pollution's effects on labor productivity but only for small groups of workers of particular occupations or firms. To provide more comprehensive estimates necessary for policy analysis, we estimate effects for all but some small firms (90% of China's manufacturing output) and capture all channels by which pollution influences productivity. To address the endogeneity of air pollution, we use thermal inversions as an instrument.

Our causal estimates imply that a one ug/m3 decrease in PM2.5 increases labor productivity by 0.85% with an elasticity of -0.45. Lowering PM2.5 by 1% nationwide through methods other than reducing manufacturing output would generate annual productivity increases of CNY 57.7 thousand for the average firm and CNY 9.2 billion or 0.062% of GDP across all firms. Improving air quality generates substantial productivity benefits and these should be considered in evaluating environmental regulations and their effect on firm competitiveness.

Keywords: air pollution, productivity, environmental costs and benefits, Firm competitiveness

JEL Classification: D62, Q51, Q53, R11

Suggested Citation

Fu, Shihe and Viard, V. Brian and Zhang, Peng, Air Pollution and Manufacturing Firm Productivity: Nationwide Estimates for China (May 20, 2018). Available at SSRN: https://ssrn.com/abstract=2956505 or http://dx.doi.org/10.2139/ssrn.2956505

Shihe Fu

Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 361005
China

V. Brian Viard (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China
86-10-8518-8858 (Phone)
86-10-8518-6800 (Fax)

HOME PAGE: http://english.ckgsb.edu.cn/faculty_content/brian-viard

Peng Zhang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

HOME PAGE: http://pengzhang.weebly.com

Register to save articles to
your library

Register

Paper statistics

Downloads
462
Abstract Views
1,573
rank
61,637
PlumX Metrics