Driving Buy: Pollution, Customers and Development

The literature on air pollution continues to grow. In an impressive paper, Bassi et al. show that firms in Uganda locate on busy roads, Busy roads are more polluted but there are more customers driving and they rely on direct customer acquisition, rather than advertising or marketing, to get customers. 

Location choice thus entails a trade-off between pollution exposure, which we verify to be mainly driven by road traffic, and access to customers. We also use our survey data to argue that the benefits can be explained primarily by the fact that, as it is typically the case across the developing world, firms sell locally through face-to-face interactions and do not have any other means to access customers than to be as visible as possible to them. Therefore, proximity to busy roads is essential.

Locating along busy roads increases profits per worker but reduces life expectancy of workers by about two months. A two month loss in life expectancy is substantial. Uganda is so poor (GDP per-capita ~$720), however, that the authors find that an (imaginary) policy of randomly allocating firms would not be cost-effective. Randomly allocating firms, however, is only one potential policy–others include using more buses or instituting a congestion tax. India has higher per capita GDP than Uganda so if all else were equal many such policies would pay in India. One type of “firm” that I have seen locate on congested roads in India is beggars and street sellers. It’s obvious that they go where the customers are but at the price of locating in very polluted areas.

I argued in India recently that reduced pollution could increase GDP. I continue to think that is true on the margin–there is some low-hanging fruit.

In other pollution news. It is clear that pollution papers are becoming a growth industry and thus there are bound to be green jelly bean problems. I haven’t read either closely but I did note that Roy et al. find that pollution increases mutual fund errors and Du finds that pollution increases racist tweets. Well, maybe. The new pollution literature is credible but remember to trust literatures not papers.