Air Pollution Reduces Economic Activity: Evidence from India

Exposure to fine particulate pollution (PM2.5) increases mortality and morbidity andreduces human capital formation and worker productivity. As a consequence, high levels of particulate pollution mayadversely affect economic activity. Using a novel dataset of changes in the annual gross domestic product of Indiandistricts, this paper investigates the impact of changes in the level of ambient PM2.5 on district-level gross domesticproduct. Using daily temperature inversions as an instrument for pollution exposure, this paper finds that higher levelsof particulate pollution reduce gross domestic product. The effect is non-trivial—the median annual increase in thelevel of PM2.5 reduces year-to-year changes in gross domestic product by 0.56 percentage points.