Inequality, survival to adulthood, and the growth drag of pollution

We theoretically investigate the interrelationship between economic inequality and the exposure to pollutants during the course of economic development. Environmental pollution adversely affects children’s probability of surviving to adulthood, thereby reducing parental expenditures on children’s quality and increasing the number of births necessary to achieve a desired family size. Children’s exposure to environmental pollution is determined by economic inequality because wealthier households live in cleaner areas, which then shapes variations in the level of human capital per child. This is the key mechanism through which environmental conditions impose a growth drag on the economy. Our theory proposes explanations for: (i) the hump-shaped evolution of child mortality ratios between cleaner and more polluted areas during the course of economic development, and (ii) the observed positive correlation between inequality and the concentration of pollutants at the local level.