Tech-driven Comparative Advantage: Evidence from Solar Expansion in China

This paper examines how large-scale solar deployment in China reshapes the spatial distribution of productive activity by alleviating electricity constraints and generating new sources of comparative advantage. We construct a novel dataset linking satellite-based measures of utility-scale photovoltaic installations from 2010 to 2022 with administrative firm-level records. We first show that solar expansion improves local electricity conditions. Capacity additions raise effective supply, reduce both planned and unplanned outages, and lower electricity prices, creating a technology-driven foundation for subsequent industrial growth. To identify the effects on economic activity, we exploit staggered and continuous variation in solar capacity across cities using panel regressions with high-dimensional fixed effects, complemented by dynamic estimators following De Chaisemartin and d’Haultfoeuille (2024) and an instrumental-variable approach. Across all specifications, we find that solar deployment increases firm entry and enhances firm performance, with the largest effects in electricity-intensive industries and resource-abundant regions. These effects are not driven by industrial policy targeting, proximity to the photovoltaic supply chain, or long-distance transmission infrastructure. Our findings demonstrate the dual role of renewable energy as both environmental policy and industrial strategy, transforming latent natural endowments into durable sources of technology-based comparative advantage.