Structural transformation and environmental externalities

Abstract

Even as policymakers seek to encourage economic development by addressing misallocation due to frictions in labor markets, the associated production externalities - such as air pollution - remain unexplored. Using a regression discontinuity design, we show access to rural roads increases agricultural fires and particulate emissions. Farm labor exits are a likely mechanism responsible for the increase in agricultural fires: rural roads cause movement of workers out of agriculture and induce farmers to use fire - a labor-saving but polluting technology - to clear agricultural residue or to make harvesting less labor-intensive. Overall, the adoption of fires due to rural roads increases infant mortality rate by 5.5% in downwind locations.