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

65 Pages Posted: 24 Jun 2019 Last revised: 20 Dec 2021

See all articles by Shihe Fu

Shihe Fu

Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE)

V. Brian Viard

Cheung Kong Graduate School of Business

Peng Zhang

affiliation not provided to SSRN

Date Written: June 24, 2019

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 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 (0.30%) while the same increase in a city 50 kilometers away decreases it by CNY 16,248 (0.11%). This effect declines rapidly to CNY 2,847 (0.02%) for an increase in a city 600 kilometers away and then slowly to zero at 1,000 kilometers. The results suggest the need for supra-provincial environmental policies or Coasian prices quantified under the approach.

Keywords: air pollution; spillovers; productivity; environmental costs and benefits; mixed two-stage least squares; regional coordination

JEL Classification: D62; Q51; Q53; R11

Suggested Citation

Fu, Shihe and Viard, V. Brian and Zhang, Peng, Trans-Boundary Air Pollution Spillovers: Physical Transport and Economic Costs by Distance (June 24, 2019). Available at SSRN: https://ssrn.com/abstract=3408976 or http://dx.doi.org/10.2139/ssrn.3408976

Shihe Fu

Xiamen University - The Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 361005
China

V. Brian Viard (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China
86-10-8518-8858 (Phone)
86-10-8518-6800 (Fax)

HOME PAGE: http://english.ckgsb.edu.cn/faculty_content/brian-viard

Peng Zhang

affiliation not provided to SSRN

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