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Trans-boundary air pollution spillovers: Physical transport and economic costs by distance

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  • Fu, Shihe
  • Viard, V. Brian
  • Zhang, Peng

Abstract

The economic costs of trans-boundary pollution spillovers versus local effects is necessary to evaluate centralized versus decentralized environmental policies. Directly estimating these for air pollution is difficult because spillovers are high-frequency and vary with distance while economic outcomes are usually measured with low-frequency and local pollution is endogenous. We develop an approach to quantify local versus spillover effects as a flexible function of distance utilizing commonly-available pollution and weather data. To correct for the endogeneity of pollution, it uses a mixed two-stage least squares method that accommodates high-frequency (daily) pollution data and low-frequency (annual) outcome data and can improve efficiency. We estimate spillovers of particulate matter smaller than 10 μg (PM10) on manufacturing labor productivity in China. A one μg/m3 annual increase in PM10 locally reduces the average firm's annual output by CNY 45,809 (0.30%) while the same increase in a city 50 km away decreases it by CNY 16,248 (0.11%). This effect declines rapidly to CNY 2847 (0.02%) for an increase in a city 600 km away and then slowly to zero at 1000 km. The results suggest the need for supra-provincial environmental policies or Coasian prices quantified under the approach.

Suggested Citation

  • Fu, Shihe & Viard, V. Brian & Zhang, Peng, 2022. "Trans-boundary air pollution spillovers: Physical transport and economic costs by distance," Journal of Development Economics, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:deveco:v:155:y:2022:i:c:s0304387821001620
    DOI: 10.1016/j.jdeveco.2021.102808
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    Cited by:

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    3. Yan Zhu & Hongfeng Zhang & Xu He, 2023. "Impact of New and Old Driving Force Conversion on Air Quality: Empirical Analysis Based on RDD," Sustainability, MDPI, vol. 15(4), pages 1-12, February.

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    More about this item

    Keywords

    Air pollution; Spillovers; Environmental costs and benefits; Mixed two-stage least squares; Regional coordination;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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