The economic cost of air pollution: Evidence from Europe

During this seminar Antoine Dechezlepretre will be speaking on his latest paper “The economic cost of air pollution: Evidence from Europe” co-authored with Nicholas Rivers (University of Ottawa) and Balazs Stadler (OECD).

Abstract

We provide the first evidence that air pollution causes economy-wide reductions in productivity and economic activity. We combine satellite-based measures of air pollution with statistics on regional economic activity throughout the European Union since 2000. We use an instrumental variables approach, based on both thermal inversions and the direction of prevailing wind, to identify the causal impact of air pollution on economic activity. We estimate that a 1μg/m3 increase in fine particulate matter concentrations causes a 1.3% reduction in gross domestic product, with 5/6 of this impact due to reductions in productivity and the remaining 1/6 due to reductions in population. Our estimates suggest that the economic benefits of reducing air pollution are much larger than previously thought, and of similar magnitude to the benefits associated with reductions in mortality.