Air Pollution and Innovation

Abstract

If air pollution harms innovation – and therefore future productivity – existing assessments of its economic cost are incomplete. We estimate the effect of fine particulate matter concentration on inventive output in 1,295 European regions. Exploiting two types of weather phenomena for identification, we find that a decrease in air pollution equivalent to the average yearly drop in Europe leads to 1.7% more patented inventions in a given region. A back-of-the-envelope calculation suggests that accounting for the effect on innovation more than doubles the economic cost of air pollution as assessed in prior work.

Keywords: Air pollution, Air Quality, Innovation, Productivity