Working Paper: NBER ID: w30536
Authors: Vittorio Bassi; Matthew E. Kahn; Nancy Lozano Gracia; Tommaso Porzio; Jeanne Sorin
Abstract: In developing countries, most manufacturing firms are small and located in high-density urban areas, often near congested streets. To study the determinants and implications of this location choice, we collect a novel firm survey and detailed air pollution measurements within Ugandan cities. We find that firms locate on the busiest roads searching for customer visibility, but in doing so they expose their workers to substantial pollution. This sorting pattern increases profits, but with severe health costs: if firms were randomly located across space, annual profits would decrease by $195 for the average firm, but its workers' life expectancy would increase by two months.
Keywords: pollution; firm location; urban economics; health economics
JEL Codes: Q4; Q53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms choose to locate near busy roads (R30) | Increased profitability (L21) |
| Firms choose to locate near busy roads (R30) | Higher levels of air pollution exposure (Q53) |
| Higher levels of air pollution exposure (Q53) | Decreased worker life expectancy (J28) |
| Firms choose to locate near busy roads (R30) | Tradeoff between profits and health costs (H51) |
| Typical firms have annual profits and value added per worker (D22) | Higher than if randomly located (C46) |
| Limited adaptation to pollution exposure (Q52) | Varies by managerial ability (M54) |
| Awareness of pollution levels (Q53) | May not significantly alter location choices (R30) |