# 1. Introduction<sup>**2**</sup>

Between 2000 and today, African economies have strengthened their position in the global economy, showing average annual growth rates of 5.9 percent between 2000 and 2008 (World Economic Forum 2009), and 5.2 percent in the last 10 years.<sup>3</sup> Furthermore, not only per capita GDP is growing, but also total factor productivity shows an average positive growth rates of just above 1% for the first time since the 1970s (Rodrik 2016).<sup>4</sup> At the same time, air pollution has climbed to dangerous levels, increasing annual deaths by 36 percent between 1990 and 2013 (Roy 2016). While some literature exists on the determinants of firm productivity for some African countries, to the best of our knowledge there is no comprehensive study that compares such determinants across regions, and none that links productivity at the firm level with air pollution measures for a sample of firms that spans all continents and regions. What are the key determinants of firm productivity in Africa and how do they compare to the rest of the world? Are there any links between firm productivity and air pollution?

To shed light on these questions, we choose to focus on exploring the links between two sets of variables that may affect firm productivity: a group of business environment characteristics and air pollution. The business environment has been identified as one of the key factors that contribute to development (Stern 2002, World Bank 2005, World Bank 2010). It provides the framework where firms interact, trade, and compete. It includes not only the basic 2 This paper aims to explore how air pollution affects city competitiveness, particularly for African cities. Although different alternatives to measure city competitiveness have been explored by the literature (see for example Porter (1990), Faberberg (1996), Boltho (1996), World Bankl (2016)), we choose to look at firm productivity. Our decision is motivated by two arguments. First, firms that are more productive tend to locate in an environment where they can reach their maximum profit. They want to hire the best, most productive workers. They also want to have access to a good set of amenities and services. More productive firms will then cluster in more competitive cities. Second, cities that offer a good quality of life will be better positioned to attract firms and qualified workers. Since good quality of life and the standard of living are determined by the productivity of an economy, then productivity defines competitiveness (Porter, 2000, p.19). Moreover, he also points out that cities cannot become more productive and competitive unless firms become more productive. High city GDP, employment, and productivity (the three measures of competitiveness highlighted by the World Bank Report, 2016) are actually a consequence of how well firms do. This close relationship between city performance and firm performance hints that looking at firm productivity is a good proxy for measuring city competitiveness.

3 Based on national GDP growth from the Oxford Economics Dataset.

4 Even though there is some heterogeneity across the continent, the growth in total factor productivity ranges between 0.5% for the East Region and 2% for the Southern Region (with the exception of the North Region that shows a negative total factor productivity growth rate of -0.5%).

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