The effect of air pollution on US aggregate production

A growing literature has documented sizeable negative effects of air pollution on individuals’ health, labour market performance and human capital accumulation, all determinants of a country’s overall economic activity. So what are the effects of air pollution on aggregate economic production? To answer this, I study the effects of PM2.5 on county-level GDP, GDP per capita, and GDP per employee in the United States (2006-2018) by exploiting a detailed dataset of yearly air pollution exposure by county and a set of instrumental variables. In my main specification, I use exogenous year-to-year variation in wildfire-induced PM2.5 exposure from air trajectories simulations. Contrary to recent studies in China and the EU, which find large negative effects in all regions, my results show no effect for the US. However, these headline results mask spatial and temporal heterogeneity. Economically relevant negative effects appear to be present in rural areas during working days or when base levels or air pollution are above the median, and in the trade sector and educational services. The results are robust to various alternative specifications and alternative instruments previously used in the literature, such as thermal inversions or smoke plume polygons.