Pollution Regulations, Air Quality, and the Local Economy

Chen, Ying (2020): Pollution Regulations, Air Quality, and the Local Economy.

Abstract

Air quality is an important amenity that affects the labor supply to a local economy while regulations aiming at improving it can be costly and consequently reduce the local labor demand. This article studies how air quality and its regulation respectively and jointly affect the local economy through these two channels by exploiting China's first national air pollution regulation and migration reform as natural experiments. I propose an instrumental variable for local pollution levels by applying rich remote-sensing data to the engineering considerations of power plant construction. The estimation results suggest that heavy air pollution has driven out high-skilled workers when migration costs fall, while the regulation to curb pollution has led to a reduction in manufacturing employment in targeted locations and sectors. Additional results show relatively slower firm and wage growth in more regulated prefectures and sectors, and a modest local employment reallocation from heavy-to light-polluting industries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Environmental regulations, Air pollution, Local economic growth
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J61 - Geographic Labor Mobility ; Immigrant Workers; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution ; Water Pollution ; Noise ; Hazardous Waste ; Solid Waste ; Recycling; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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