Key message 1 – Air pollution has severe economic and welfare costs. These costs are often excluded when designing new policies.

It is estimated that approximately 4.2 million people die every year as a result of exposure to outdoor air pollution and 3.8 million people die as a result of household exposure to smoke from dirty cookstoves and fuel (World Health Organisation, 2019). Although, the level of pollution is expected to increase over time and exposure to air pollution has had a far more devastating impact than exposure to malaria or unclean water, there has been relatively less awareness or policy action on this issue. If no new policies are introduced, the outlook is expected to worsen significantly (OECD, 2012).

One of the reasons air pollution has been less of a priority for governments is because it is often viewed as a ‘necessary evil’ for economic growth. Common belief is that if countries want to progress, they must produce more, transport more, and buy more – and thus, if we restrict burning of fossil fuels, then we must also forgo economic growth.

However, air pollution from these activities can potentially hold back economic growth. Policymakers must take this into account as air pollution can cause irreversible long-term damage. Health effects of air pollution have both a direct impact, through premature deaths, infant mortality, and mental health issues, and an indirect impact, through lost work hours, decreased productivity, and migration.

Direct impact: Mortality and morbidity

In terms of direct impact, there have been several studies on the economic cost of the health effects of air pollution. Keen and Altieri (2016) studied the effect of the health burden of South Africa’s current level of air pollution. They estimated that there were more than 21,000 premature deaths per year due to high levels of air pollution (approximately 7.4% of all deaths). These premature deaths cost the economy US$ 20 billion (2016). Another study, conducted in China, discovered an arbitrary Chinese policy that greatly increased air pollution in
one region, causing 500 million residents of Northern China to lose more than 2.5 billion years of life expectancy (Chen et al., 2013). To put it in a more global perspective, it is estimated that the welfare costs from premature deaths for the world were over US$ 3 trillion in 2010 and are anticipated to be over US$ 25 trillion by 2060 (OECD, 2016).

Figure 1: Death rate from ambient particulate air pollution

Not only does air pollution cause premature deaths, it also has a significant impact on infant mortality. A study examined the effect of air pollution on infant mortality and found that a one percent increase in carbon monoxide over a year results in a 0.23% increase in infant mortality. A one percent increase in particulate matter (PM) leads to a 0.42% increase in infant mortality (Arceo-Gomez, Hanna and Oliva, 2012). Studies have also linked both prenatal and post-natal air pollution exposure to increased infant mortality (Jayachandran, 2008; Currie and Neidell, 2005).

Air pollution also has significant mental health effects. A study examining the mental health consequences of air pollution discovered that an increase in average PM1 concentrations was associated with an increased probability of having a score that is associated with severe mental illness. Based on average health expenditures associated with mental illness and rates of treatment among those with symptoms, air pollution induced a total annual cost of US$ 22.88 billion in health expenditures (Chen, Oliva and Zhang, 2018).

Indirect impact: Productivity, hours worked, and migration

Premature deaths and health expenditures due to air pollution have a significant impact on the economy. However, air pollution also has several latent but pervasive consequences. One study looked into the relationship between pollution and lost work hours in Mexico City. The researchers discovered that the closure of a large refinery resulted in a 19.7% decrease in pollution and a 3.5% (1.3 hour) increase in the number of work hours per week. This meant that in the first year alone, the total gain in terms of labour income was approximately US$ 112 million (Hanna and Oliva, 2011).

Another study examined the effects of air pollution on white-collar workers who work primarily in-doors. It looked at workers in two call centres in China, tracked their daily calls, and discovered that the workers were, on average, 6% more productive on low pollution days than on high pollution days. The results show that not only does air pollution result in less working hours, but there is decreased productivity of each work-hour (Chang et al., 2016).

Researchers also looked into migration patterns and noticed that pollution contributed to migration flows in China. Well-educated people at the beginning of their professional careers are willing to incur potentially large costs to protect themselves from air pollution. This suggests that air pollution is driving talent out of major cities (Chen, Oliva and Zhang, 2017).

These studies show that air pollution has inescapable consequences for economic growth.2 Any cost-benefit analysis of policies that excludes the impact of air pollution will grossly underestimate the overall economic and welfare cost. Decreased mortality and health expenditure, increased total number of work hours, increased productivity of each work hour, and attracting talented people into cities will go a long way to boost economic growth. Therefore, investment in strategies to mitigate air pollution are essential for economic growth. Nevertheless, as we are understanding pollution’s high and pervasive costs more, it begs the question as to why so little has been done to address it?




  • 1 The paper used PM 2.5 concentrations, as those particulates can be inhaled and cause oxidative stress and systemic inflammation (Chen, Oliva and Zhang, 2018).
  • 2 Some researchers make the argument that we need to move beyond using GDP to measure economic growth and adopt indicators that also consider air pollution.