Environmental Regulation, Firm Export Dynamics, and Welfare: Evidence from Mexico’s Air-Quality Programs
Abstract
This paper studies how spatially targeted air-quality regulation affects firm emissions, export dynamics, and welfare in an open economy. I examine Mexico’s ProAire programs using the 2011-2020 municipal rollout and linked firm data. A 2005-2018 decomposition shows that Mexico’s manufacturing emissions-intensity decline was driven mainly by within-industry technique changes rather than output reallocation. In the difference-in-differences analysis, ProAire is associated with a 24 percent decline in reported CO2 emissions among RETC-reporting firms. Export entry changes little, while export exit rises by 2.7 percentage points. Among continuing exporters, export sales fall by about 9 percent, with losses concentrated among smaller firms. A quantitative spatial model with heterogeneous firms, endogenous abatement, trade, atmospheric transport, and worker sorting evaluates the aggregate implications of the observed ProAire rollout. The counterfactual implies a 10.88 percent reduction in national emissions and a 4.08 percent welfare gain.
