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The Size Distribution of Firms and Industrial Water Pollution: A Quantitative Analysis of China†

The Size Distribution of Firms and Industrial Water Pollution: A Quantitative Analysis of China† AbstractWe argue that misallocation across firms amplifies industrial water pollution by distorting the firm size distribution in China. Firm-level data indicate that larger firms are more likely to use clean technology but face higher distortions. In a heterogeneous firms model with an endogenous choice of pollution treatment technologies, we show that distortions that increase with firm-level TFP lower the adoption of clean technology, amplify aggregate pollution intensity, and lower aggregate output. Quantitatively, eliminating these correlated distortions would increase output by 30 percent and decrease pollution by 20 percent. Meanwhile, environmental regulations have sizable impact on pollution but limited effects on aggregate output. (JEL O13, O14, P28, P31, Q52, Q53, Q58) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

The Size Distribution of Firms and Industrial Water Pollution: A Quantitative Analysis of China†

The Size Distribution of Firms and Industrial Water Pollution: A Quantitative Analysis of China†

American Economic Journal: Macroeconomics , Volume 13 (1) – Jan 1, 2021

Abstract

AbstractWe argue that misallocation across firms amplifies industrial water pollution by distorting the firm size distribution in China. Firm-level data indicate that larger firms are more likely to use clean technology but face higher distortions. In a heterogeneous firms model with an endogenous choice of pollution treatment technologies, we show that distortions that increase with firm-level TFP lower the adoption of clean technology, amplify aggregate pollution intensity, and lower aggregate output. Quantitatively, eliminating these correlated distortions would increase output by 30 percent and decrease pollution by 20 percent. Meanwhile, environmental regulations have sizable impact on pollution but limited effects on aggregate output. (JEL O13, O14, P28, P31, Q52, Q53, Q58)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180227
Publisher site
See Article on Publisher Site

Abstract

AbstractWe argue that misallocation across firms amplifies industrial water pollution by distorting the firm size distribution in China. Firm-level data indicate that larger firms are more likely to use clean technology but face higher distortions. In a heterogeneous firms model with an endogenous choice of pollution treatment technologies, we show that distortions that increase with firm-level TFP lower the adoption of clean technology, amplify aggregate pollution intensity, and lower aggregate output. Quantitatively, eliminating these correlated distortions would increase output by 30 percent and decrease pollution by 20 percent. Meanwhile, environmental regulations have sizable impact on pollution but limited effects on aggregate output. (JEL O13, O14, P28, P31, Q52, Q53, Q58)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2021

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