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

Author

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  • Ji Qi
  • Xin Tang
  • Xican Xi

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.

Suggested Citation

  • Ji Qi & Xin Tang & Xican Xi, 2021. "The Size Distribution of Firms and Industrial Water Pollution: A Quantitative Analysis of China," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(1), pages 151-183, January.
    • Handle: RePEc:aea:aejmac:v:13:y:2021:i:1:p:151-83
    DOI: 10.1257/mac.20180227
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    Citations

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    Cited by:

    1. Tao Song, 2024. "Pollution reduction by rationalization hypothesis and water pollution in China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    2. Fan, Haichao & Peng, Yuchao & Wang, Huanhuan & Xu, Zhiwei, 2021. "Greening through finance?," Journal of Development Economics, Elsevier, vol. 152(C).
    3. Hien Vo Van & Tu Thanh Hoai & Nha Nguyen Minh & Nguyen Phong Nguyen, 2023. "Green Transformational Leadership and Green Mindfulness as Contributors to Green Innovation and Environmental Performance: Evidence From Manufacturing Firms in Vietnam," SAGE Open, , vol. 13(3), pages 21582440231, August.
    4. Xu Ou & Haiwei Jiang, 2023. "The Impact of Environmental Regulation on Firm Performance: Evidence from the Pulp and Paper Industry in China," IJERPH, MDPI, vol. 20(4), pages 1-18, February.
    5. Kevin X. D. Huang & Guoqiang Tian & Xiaowen Wang, 2023. "Centering on economic construction to stabilize general socioeconomic conditions while fully promoting economic recovery: Outlook, policy simulations, and reform implementation—A summary of the annual," International Studies of Economics, John Wiley & Sons, vol. 18(1), pages 2-20, March.
    6. Dan Xie, 2024. "China’s Manufacturing Pollution, Environmental Regulation and Trade," FIW Working Paper series 198, FIW.

    More about this item

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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