The Morbidity Cost of Air Pollution: Evidence from Consumer Spending in China

63 Pages Posted: 15 Jul 2017 Last revised: 24 May 2018

See all articles by Panle Jia Barwick

Panle Jia Barwick

Cornell University

Shanjun Li

Cornell University - School of Applied Economics and Management

Deyu Rao

Cornell University

Nahim Zahur

Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

Developing and fast-growing economies have some of the worse air pollution in the world, but there is a lack of systematic evidence on the health especially morbidity impact of air pollution in these countries. Based on the universe of credit and debit card transactions in China from 2013 to 2015, this paper provides to our knowledge the first analysis of the morbidity cost of PM2.5 for the entire population of a developing country. To address potential endogeneity in pollution exposure, we construct an instrumental variable by modeling the spatial spillovers of PM2.5 due to long-range transport. We propose a flexible distributed-lag model that incorporates the IV approach to capture the dynamic response to past pollution exposure. Our analysis shows that PM2.5 has a significant impact on healthcare spending in both the short and medium terms that survives an array of robustness checks. The annual reduction in national healthcare spending from complying with the World Health Organization’s annual standard of 10 μg/m3 would amount to $42 billion, or nearly 7% of China’s total healthcare spending in 2015. In contrast to the common perception that the morbidity impact is modest relative to the mortality impact, our estimated morbidity cost of air pollution is about two-thirds of the mortality cost from the recent literature.

Keywords: Air Pollution, Consumer Spending, Morbidity Cost

JEL Classification: Q51, Q53

Suggested Citation

Barwick, Panle Jia and Li, Shanjun and Rao, Deyu and Zahur, Nahim, The Morbidity Cost of Air Pollution: Evidence from Consumer Spending in China (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=2999068 or http://dx.doi.org/10.2139/ssrn.2999068

Panle Jia Barwick

Cornell University ( email )

Ithaca, NY 14853
United States

Shanjun Li (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Deyu Rao

Cornell University ( email )

Ithaca, NY 14853
United States

Nahim Zahur

Cornell University ( email )

Ithaca, NY 14853
United States

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