Smog as a daily trade barrier: evidence from China’s city-to-city truck flows

Air pollution imposes substantial social and economic costs, yet its immediate impact on domestic trade remains underexplored. Prior studies emphasize health and long-term productivity effects, while little is known about short-run disruptions in goods movement. This paper investigates how daily air pollution affects city-to-city truck flows in China, a crucial channel of regional connectivity. We assemble a novel dataset of more than two million daily truck movements across 300 cities in 2019, matched with official air quality indices and meteorological information. To address endogeneity, we exploit thermal inversions as an instrumental variable, which generates exogenous variation in pollution levels. The specification includes comprehensive weather controls and high-dimensional fixed effects. Our results indicate that a 10% increase in the air quality index reduces same-day truck flows by about 2.8%. The adverse effect is stronger in less developed, less open, and more polluted cities, and in winter and spring. These findings suggest that air pollution functions as a daily trade cost, hindering regional connectivity. Improving air quality can therefore enhance not only health outcomes but also trade efficiency, transport resilience, and inclusive development in emerging economies.