We study how air pollution affects firm dynamics: entry, exit, innovation, and (aggregate) productivity. Using an … instrumental variable strategy, we find that air pollution significantly reduces entry and innovation and raises exit. Moreover …, air pollution leaves firms with higher productivity entering and staying in the market, which corresponds to the selection …

construct a unique micro dataset that merged two rich firm-level datasets for China for 2007. When combining this new dataset … economies. We further discuss mechanisms that explain the observed pattern and show that exporters realize higher abatement … efforts compared to non-exporters. This study complements the literature in terms of providing China's micro evidence on SO2 …