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Air pollution as comparative disadvantage

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  • He, Shi-Ting
  • Sheng, Liugang
  • Zhang, Peng

Abstract

This paper is the first to examine the impact of air pollution on exporters’ comparative advantage in the global market and their ensuing strategic responses. Using comprehensive firm-product export data from China spanning 2000 to 2007 and exploiting exogenous variation in air pollution induced by thermal inversions for identification, we estimate a detrimental effect of increased air pollution on exports through its adverse impact on labor productivity. The effects are particularly pronounced for labor-intensive products, prompting firms to restructure their product scope away from labor-intensive varieties. Moreover, larger firms exhibit greater resilience to these adverse effects. The quantitative analysis demonstrates that improving air quality in China would significantly enhance its comparative advantage and aggregate welfare, while also benefiting the rest of the world.

Suggested Citation

  • He, Shi-Ting & Sheng, Liugang & Zhang, Peng, 2026. "Air pollution as comparative disadvantage," Journal of Public Economics, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:pubeco:v:254:y:2026:i:c:s0047272725002592
    DOI: 10.1016/j.jpubeco.2025.105560
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    Keywords

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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