Productivity, Export, and Environmental Performance: Air Pollutants in the United States

This paper studies the firm-level relationship among productivity, decision to export, and environmental performance. The emerging theoretical and empirical literature suggests that trade has an important role in determining firms’ heterogeneity: increased openness to trade induces a reallocation effect that increases within-industry efficiency, thereby linking firms’ decisions to export and adopt newer (and cleaner) technology. We argue that this framework provides the following empirically-relevant predictions: there is an inverse relationship between firm productivity and pollution emissions per unit output; exporting firms have lower emissions per unit output; and larger firms have a lower emission intensity. To examine these implications empirically, we have assembled a uniquely detailed dataset of the U.S. manufacturing industry for the years 2002, 2005, and 2008 by matching facility-level air emission data from the U.S. Environmental Protection Agency with the facility’s economic characteristics contained in the National Establishment Time Series database. The strategy is to first estimate a facility-level total factor productivity parameter as a plant-specific fixed effect. We then investigate how this estimated productivity parameter correlates with emission intensity on a pollutant-by-pollutant basis. Our empirical findings support the hypotheses suggested by the conceptual model. For each criteria air pollutant considered, we find a significant negative correlation between estimated facility productivity and emission intensity. Conditional on a facility’s estimated productivity and other controls, exporting facilities have significantly lower emissions per value of sales than non-exporting facilities in the same industry. We also find that plant size is negatively and significantly related to emission intensity for all pollutants.