Environmental Regulation, Firm Export Dynamics, and Welfare: Evidence from Mexico’s Air-Quality Programs
Abstract
This paper studies how spatially targeted air-quality management affects firm emissions, export dynamics, and welfare in a middle-income open economy. I examine Mexico’s ProAire programs using the 2011–2020 municipal rollout and linked firm–municipality data. A 2005–2018 decomposition shows that the decline in manufacturing emissions intensity was driven mainly by within-industry technique changes rather than output reallocation. In difference-indifferences estimates, ProAire lowers reported CO2 emissions among RETC reporting firms by about 11 percent. Export entry changes little, while export exit rises by 2.8 percentage points. Among continuing exporters, export sales fall by about 10 percent, with losses concentrated among smaller firms. I use a spatial model with heterogeneous firms, dirty production, trade, atmospheric transport, and worker sorting to evaluate the aggregate implications of the policy rollout. In the benchmark counterfactual, ProAire reduces national dirty-sector emissions by 9.81 percent and raises welfare by 2.13 percent, with abatement driven mainly by lower emissions intensity rather than scale contraction.
