Pollution's Impact: Gdp's Loss And Gain?

There is a clear link between pollution and economic growth, with countries with higher productivity tending to generate more pollution. Pollution has a significant economic impact on gross domestic product (GDP) and can influence international trade patterns and macroeconomic relationships. Environmental issues such as water and air pollution can extend beyond national borders, affecting neighbouring countries and the wider world. For instance, air pollution in China has led to increased mortality rates in South Korea due to respiratory and cardiovascular diseases. While economic growth often leads to increased pollution, certain countries, such as Norway, have achieved economic growth while significantly reducing pollution levels, indicating that environmental degradation is not an inevitable consequence of economic progress.

Air pollution costs

Air pollution is the world's greatest environmental health threat, causing around 7 million deaths per year. It is linked to an increased risk of stroke, heart disease, lung cancer, and respiratory diseases. The health effects of air pollution also extend to productivity and cognitive function, resulting in a loss of workforce participation and increased healthcare costs.

The economic and health costs of air pollution are significant. In 2018, a report by Greenpeace Southeast Asia and the Centre for Research on Energy and Clean Air estimated the total cost of air pollution at US$2.9 trillion, accounting for 3.3% of global GDP. This figure can be broken down into various impacts, including adult deaths ($2.4 trillion), disability from chronic diseases ($200 billion), sick leaves ($100 billion), child deaths ($50 billion), and preterm births ($90 billion).

The costs of air pollution vary across regions. In 2013, global welfare losses from PM2.5 and O3 exposure totalled $5.11 trillion, with the highest losses in East Asia and the Pacific ($2,306 billion) and the lowest in Sub-Saharan Africa ($114 billion).

The impact of air pollution is not limited to a single country or community. For example, air pollution from China has contributed to increased mortality rates in neighbouring South Korea. Similarly, pollution from data centres in Northern Virginia has impacted communities in multiple states, resulting in regional public health costs of up to $260 million per year.

The costs of air pollution are not inevitable. Some countries, like Norway, have demonstrated that economic growth can be achieved alongside significant reductions in air pollution levels. Achieving the Paris Agreement targets for mitigating climate change is projected to cost US$22 trillion, but the resulting health benefits could save $54 trillion, leading to a net savings of $32 trillion.

Environmental Kuznets Curve

The Environmental Kuznets Curve (EKC) is a hypothesis that suggests a relationship between environmental quality and economic development. The EKC, named after economist Simon Kuznets, posits that as economic growth occurs, environmental quality initially declines, but beyond a certain level of economic development, the trend reverses, and environmental quality improves. In other words, the EKC suggests that "the solution to pollution is economic growth".

The EKC is based on the idea that in the early stages of economic growth, pollution emissions increase and environmental degradation occurs due to factors such as increased energy use and industrialisation. However, as income levels rise, people become more concerned about the environment and are willing to pay higher prices for better environmental standards. Additionally, technological advancements and government regulations can help reduce pollution levels. As a result, at higher income levels, economic growth leads to environmental improvement.

The EKC has been supported by empirical evidence, particularly for certain environmental health indicators such as water and air pollution, which show an inverted U-shaped curve as per capita income and/or GDP rise. For example, in the US, economic growth has led to an increased use of cars, but regulations have also contributed to a decline in air pollution, specifically sulphur dioxide levels.

However, the EKC model has been debated and criticised. Some argue that there is no guarantee that economic growth will lead to an improved environment, and in fact, the opposite may occur. The link between income levels and environmental degradation is weak, and it requires targeted policies and attitudes to ensure that economic growth is compatible with environmental improvement. Additionally, the EKC may not apply to all pollutants and natural resource use, and there may be concerns about simply exporting environmental degradation to other countries.

In conclusion, while the EKC suggests a potential relationship between economic development and environmental quality, it is important to recognise that economic growth alone may not be sufficient to improve the environment and that other factors, such as government policies and technological advancements, also play a significant role.

Health and mortality

Air pollution is the leading cause of disease and premature death worldwide, with low- and middle-income countries suffering the most. It is the single largest environmental health risk in Europe, and a major cause of premature death and disease.

Health Impacts

Air pollution can lead to a wide range of diseases, including stroke, chronic obstructive pulmonary disease, trachea, bronchus and lung cancers, aggravated asthma, and lower respiratory infections. There is also evidence linking air pollution to type 2 diabetes, obesity, systemic inflammation, Alzheimer’s disease, dementia, and cardiovascular disease. Children are particularly vulnerable to the health impacts of air pollution, as their bodies and immune systems are still developing.

Mortality

Air pollution is responsible for approximately 9 million premature deaths per year, which is one in six deaths worldwide. In 2019, there were 1.67 million deaths attributable to air pollution in India alone. In the same year, air pollution was responsible for 238,000 premature deaths in the 27 EU member states.

Economic Impacts

The economic losses associated with premature deaths due to air pollution are vast. In 2019, the global economic losses attributable to household and ambient air pollution amounted to 6.1% of global economic output. In India, the economic loss due to lost output from premature deaths and morbidity attributable to air pollution was 1.36% of India's GDP in 2019.

Strategies to Reduce Air Pollution

To reduce the health and economic impacts of air pollution, sustainable urbanization practices are crucial. Governments should take health and environmental protection into consideration when planning and evaluating urbanization. Additionally, interventions that target exposure to air pollution are needed, especially in low- and middle-income countries.

Labour and productivity

Labour productivity is an essential element of a nation's economy, and investing in human capital is key to sustaining increases in labour productivity and economic growth. While health is increasingly seen as an important part of human capital, environmental protection—which typically promotes health—has not always been viewed through this lens.

A large body of evidence links pollution with poor health outcomes, and some studies have documented the impacts of pollution on labour supply. However, there is limited systematic evidence on the direct impact of pollution on worker productivity.

A study by Graff Zivin and Neidell (2012) is the first to rigorously assess the less visible but likely more pervasive impacts of pollution on worker productivity. They exploit a novel panel dataset of daily farm worker output as recorded under piece-rate contracts, merged with data on environmental conditions, to relate the plausibly exogenous daily variations in ozone with worker productivity. They find robust evidence that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 parts per billion (ppb) decrease in ozone concentrations increases worker productivity by 4.2% to 5.5%.

Another study by Chang et al. (2019) examines the impact of pollution on call-center workers in two Chinese cities. They find that each 10-unit increase in the pollution index reduced worker productivity—measured by the number of calls handled—by 0.35%.

These studies suggest that pollution can have a significant impact on labour productivity, even at levels below federal air quality standards. Addressing air pollution is not only crucial for protecting public health but also for promoting economic growth and improving labour productivity.

International trade patterns

• Trade-Offs and Comparative Advantage: The basic economic principle of trade-offs dictates that obtaining more of a desirable outcome often comes at the cost of sacrificing another desirable outcome. In the context of pollution, countries may prioritise economic growth over environmental protection, resulting in increased pollution levels. This is particularly true when countries possess a comparative advantage in industries that contribute to pollution. For instance, countries with abundant natural resources, such as fossil fuels or certain types of manufacturing, may have a comparative advantage in these sectors, leading to higher pollution levels as they specialise in these industries to maximise gains.
• Impact on Competitiveness: High levels of pollution can negatively affect a country's competitiveness in the global market. For example, firms operating in highly polluted environments may struggle to compete internationally due to the negative impact of pollution on their production processes and natural resource availability. This can lead to a decline in their exports and a shift in trade patterns.
• Pollution Havens: The concept of "pollution havens" refers to countries that specialise in dirtier production processes and export their products to other nations that focus on cleaner production. This can alter the geographical distribution of pollution without necessarily changing the average pollution levels globally.
• Income and Trade Openness: The relationship between income and trade openness, as measured by the ratio of trade to income, is significant. Higher-income countries tend to have stronger environmental regulations and are more responsive to environmental concerns. As countries become more open to trade, they may experience a reduction in air pollution levels due to increased international pressures and the adoption of cleaner production techniques from more developed nations.
• Specialisation and Intra-Industry Trade: The second wave of globalisation, driven by technological advancements, has led to an increase in intra-industry trade. Countries are now exchanging similar goods and services, facilitating specialisation and increasing the scope for production efficiency. This shift in trade patterns has implications for pollution levels, as countries focus on specific industries that may have varying environmental impacts.
• South-South Trade: The rise of South-South trade, or trade between developing countries, has been a notable trend. This shift has been driven by the increasing importance of emerging economies, such as China, in global trade. The expansion of trade among developing countries can influence pollution levels and environmental policies within this group of nations.
• Preferential Trade Agreements: The increase in preferential trade agreements, which reduce tariffs between participating countries, has contributed to changing trade patterns. These agreements often involve developing countries, and their impact on pollution levels and environmental standards within these regions can be significant.
• Food Exports and Income Levels: There has been a decrease in the relative importance of food exports in middle-income countries, particularly in Latin America. This shift in trade patterns may have implications for pollution levels, as agricultural practices can be a significant source of pollution.

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