Suffocating prosperity: Air pollution and economic growth in developing countries

Air pollution is a silent killer that imposes substantial welfare and economic costs. Yet, people and governments underinvest in clean air. Policymakers must intervene with innovative solutions.

Historically, economic growth and the externalities of growth have been studied and dealt with separately. However, we are now reaching the point where the externalities of growth, such as air pollution, are holding back economic growth and thus policy decisions can no longer be made in isolation.

Air pollution is an externality of growth that has significant consequences at all levels; it affects individuals, firms, and governments. Approximately, nine out of ten individuals worldwide breathe air with high levels of pollution. Both outdoor and indoor air pollution have significant and long-lasting consequences. Over four million people die every year from exposure to outdoor air pollution and nearly as many perish from household exposure to dirty fuels, the overwhelming majority in developing countries (World Health Organisation, 2019).

In this brief, we look at the often severe economic impacts of air pollution in developing countries and what can be done to mitigate them. We discuss some reasons why individuals seem to have low demand for improving the quality of the environment and how these introduce a role for government intervention. We then layout policy instruments that can be used to curb pollution and discuss some ways that these can be adapted to developing country contexts.