# **1 Introduction**

Developing countries are becoming increasingly urbanized and this trend is expected to continue, with half of the population in low-income countries projected to live in cities by 2050 (Glaeser and Henderson 2017, United Nations 2019).

Cities in the developing world feature some of the world’s highest levels of pollution, with such levels rising over time as a result of motorization, poor infrastructure and poor urban planning that ultimately lead to traffic congestion (Grossman and Krueger 1995; Akbar et al. 2018; Harari 2020).<sup>1</sup> The high and increasing pollution generates severe health consequences which may reduce worker productivity. Recent research has established the negative productivity effects of pollution exposure.<sup>2</sup> These effects are likely to be even more severe in developing countries due to poor healthcare systems.

Managers may play a key role in mediating the severity of the health cost of pollution on worker productivity, especially in low income countries where the ability of governments to regulate pollution emissions and work conditions is limited by weak state capacity. As air pollution is not uniformly distributed within the city, the location choice of where to set up the firm determines workers’ pollution exposure. Managers can also undertake mitigation investments to limit exposure to pollution conditional on location, such as providing their workers with protective equipment or putting in place organizational strategies to limit exposure, such as flexibility in work schedules to avoid exposure at peak pollution times. Despite an established literature on the role of management for firm productivity in both developed and developing countries (Bloom and Van Reenen 2007, 2011; McKenzie and Woodruff 2017), little is known on the role of managers in mediating exposure to pollution. Answering this question is important as it sheds light on another avenue through which good management may raise both firm productivity and worker welfare.

Our contribution is to fill this evidence gap by collecting a unique dataset that allows us to characterize the role of managers in polluted cities in Sub-Saharan Africa. We combine street-level pollution measurements within Ugandan cities with rich information on management practices and investments to protect workers from pollution from a novel representative geocoded survey of manufacturing firms. Guided by a simple model that illustrates the trade-offs faced by a manager in a polluted city, we document three facts. First, we show that the nature of informal production in developing countries generates a location choice trade-off between high profitability areas, and areas with low exposure to pollution, since proximity to large and busy roads bundles a good (product demand) with a bad (pollution exposure). Second, we document

> 1For instance, in Uganda, the setting of our study, between 2013 and 2019 over 800,000 vehicles were added to the country’s vehicle fleet. Kreindler (2018) documents rising ownership rates of motor-vehicles in India between 2005-2015.

> 2See Graff Zivin and Neidell (2012), Chang et al. (2016), Adhvaryu et al. (2019) and Fu et al. (2021).

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