The china shock: has industrial reorganization affected regional pollution in Brazil?

Abstract

Since China started to take a more active part in international trade, there have been worldwide shifts in the flow of trade. This, coupled with the perception of lack of environmental regulation in Brazil, has raised concerns about the possible impacts of trade flow shifts on the environment (Young, 2010). Based on literature on the environmental impacts of trade, methodology in Costa et al. (2016) around the Local Labor Markets framework, and health outcome evidence from Bombardini & Li (2016), this paper aims to infer if the industrial shift caused by the rise in trade between Brazil and China in the first decade of this century has impacted levels of pollution in Brazilian microregions. To do this, water and air quality data, along with mortality due to a pollution related illness data is used. Results show statistically significant evidence that the rise in demand for Brazilian exports, the demand shock, had a negative impact on air quality and a positive impact on health outcomes at the 20% level. Results also show that the rise in demand of imports from China, the supply shock, has negatively affected health outcomes, with results significant at the 20% level. Regarding water, results shows no statistically significant evidence that the trade shocks have impacted its quality.