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

Ji Qi, Xin Tang and Xican Xi

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 1, 151-83

Abstract: We 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-codes: O13 O14 P28 P31 Q52 Q53 Q58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (10)

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DOI: 10.1257/mac.20180227

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