Environmental Externalities from Agriculture: Evidence from Water Quality in the United States

Agricultural fertilizer use is widely acknowledged to be a leading cause of water pollution. Yet, no national estimates exist on the effect of fertilizer application on concentrations of agricultural pollutants in US watersheds. This paper employs a watershed‐level panel data on nitrogen and phosphorus pollution readings to examine the impact of fertilizer use on US water quality over a fifty‐five‐year time period from 1951 to 2005. Findings show that a 10% increase in the use of nitrogen and phosphorus fertilizers leads to a 1.52% increase in the concentration of nitrogen and a 1.37% increase in the concentration of phosphorus across watersheds. Results also indicate that there exists heterogeneity in nutrient pollution elasticity estimates across eighteen US water resource regions, ranging from 0.082 to 0.733 in the case of nitrogen and from 0.036 to 0.475 in the case of phosphorus. Combining our results with prior hydrology‐based studies, we find that a 100% increase in the use of nitrogen fertilizers in the Lower Mississippi water resource region expands the size of the hypoxic zone in the Gulf of Mexico by roughly 3,389 square miles, equivalent to about two‐fifths of the estimated size of the dead zone in the Gulf of Mexico.