Polluting my downwind neighbor: Evidence of interjurisdictional free riding from air polluter locations in China

Abstract

Based on comprehensive firm-level datasets and wind pattern information in China, I find evidence of the ‘polluting my neighbor’ phenomenon at the provincial level. Large air-polluting manufacturing firms tend to be disproportionately situated near downwind borders, particularly when wind speeds are lower. Quantitatively, the expected number of new large air polluters (top 10%) in a county-year cell decreases by 11% as the county’s distance to the downwind province border increases by one standard deviation (192 km). Additionally, a one-standard-deviation (0.27 m/s) increase in wind speed reduces the expected number of large air polluters by 6% in counties 100 km closer to the downwind border. The results are robust across various empirical strategies and withstand multiple placebo tests and robustness checks. This finding is predominantly driven by top 10% largest air polluters since placing larger polluters closer to the border can externalize more environmental costs. Furthermore, I demonstrate that this strategic siting of air polluters leads to air quality inequality, disproportionately affecting socioeconomically disadvantaged populations in downwind areas within a province.