Trans-Boundary Air Pollution Spillovers: Physical Transport and Economic Costs by Distance

Shihe Fu (), V. Viard and Peng Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: The economic costs of trans-boundary pollution spillovers versus local effects is a necessary input in evaluating 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. This avoids using annual pollution data which generally yields inefficient estimates. We apply the approach to estimate spillovers of particulate matter smaller than 10 micrograms (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 while the same increase in a city 50 kilometers away decreases it by CNY 16,248. The spillovers decline quickly to CNY 2,847 at 600 kilometers and then slowly to zero at about 1,000 kilometers. The results suggest the need for supra-provincial environmental policies or Coasian prices quantified under the approach.

Keywords: Air pollution; spillovers; environmental costs and benefits, mixed two-stage least squares; regional coordination (search for similar items in EconPapers)
JEL-codes: D62 Q51 Q53 R11 (search for similar items in EconPapers)
Date: 2019-08-14, Revised 2020-08-14
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Trans-boundary air pollution spillovers: Physical transport and economic costs by distance (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102438

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