Small Manufacturing Plants, Pollution, and Poverty: New Evidence from Brazil and Mexico

Small, dirty manufacturing plants dominate poor regions but have only a small impact on pollution. Large plants in high-income areas cause most of the damage to human health.

This paper uses new data from Brazil and Mexico to analyze relationships linking economic development, the size distribution of manufacturing plants, and exposure to industrial pollution. For lack of data, prior work in this field has been limited largely to water pollution and medium-size plants. This study examines air pollution and encompasses small plants (with 1 to 20 employees) as well as medium-size and large plants. Four main questions are addressed (with answers from plant-level data):

1. Are small plants more pollution-intensive than large facilities? Clearly, yes.

2. Are there proportionately more small plants in low-income regions? The answer is yes, in thousands of Brazilian municipalities. Small plants dominate poor regions and are a relatively low source of employment in high-income areas.

3. Is industry more pollution-intensive in low-income regions? In Brazil, yes. For each municipality, the authors estimate the share of the six most pollution-intensive ("dirty") sectors in total industrial activity. They find that the dirty-sector share declines continuously with increases in municipality income per capita.

4. Do poor areas suffer more than wealthy areas from industrial air pollution? Paradoxically, no. The risk of mortality from industrial air pollution is much higher in the top two income deciles among Brazil's municipalities and the great majority of projected deaths is attributable to emissions from large plants. The scale of large-plant emissions dominates all other factors. Lower-income areas suffer much less from industrial air pollution in Brazil, despite the greater emissions-intensity of smaller plants and the prevalence of smaller plants in lower income areas.

This paper -- a product of Infrastructure and Environment, Development Research Group --is part of a larger effort to understand the economics of industrial pollution control in developing countries.

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Susmita Dasgupta Robert E. B. Lucas and David Wheeler
World Bank