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  5. The Productivity Consequences of Pollution-Induced Migration in China

American Economic Journal:
Applied Economics

ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)

The Productivity Consequences of Pollution-Induced Migration in China

  • Gaurav Khanna
  • Wenquan Liang
  • Ahmed Mushfiq Mobarak
  • Ran Song
American Economic Journal: Applied Economics (Forthcoming)

Abstract

We quantify how pollution affects aggregate productivity and welfare in spatial equilibrium. We show that skilled workers in China emigrate away from polluted cities. These patterns are evident under various empirical specifications, such as when instrumenting for pollution using upwind power-plants, or thermal inversions. Pollution changes the spatial distribution of skilled and unskilled workers, and wage returns by location. We quantify the loss in aggregate productivity due to this re-sorting by estimating a spatial equilibrium model. Counterfactual simulations show that reducing pollution increases productivity through spatial re-sorting by approximately as much as the direct health benefits of clean air.

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