Watson Institute for International and Public Affairs

Jamie Hansen-Lewis ─ Does Air Pollution Lower Productivity? Evidence from Manufacturing in India

Wednesday, November 14, 2018

4 p.m. – 5:30 p.m.

McKinney Conference Room

Jamie Hansen-Lewis is a PhD candidate in economics at Brown University. Her research interests lie in economic development, environmental economics, and remote sensing.

Environmental policy aims to ensure the economic benefits of pollution abatement justify the costs. This calculation is especially challenging when considering how to account for common minor tolls of air pollution that may vary widely in their cumulative impact across the population. In particular, industries risk incurring costs from unhealthy workers and polluted workplaces, yet they differ substantially in their workplace conditions and operating processes. This paper evaluates the extent and variation of these costs across manufacturing industries in India, a setting where air pollution exceeds international guidelines with near ubiquity. I estimate the effect of air pollution on industrial productivity using wind velocity as an instrument for pollution. With firm panel and satellite-derived pollution data, I find air pollution substantially lowered productivity among industries with labor intensive technology, yet I find pollution had little average effect. To understand the sources of variance, I estimate a model of profit maximization that incorporates pollution into production. The model implies that differences in technology contribute to heterogeneity. I estimate that a one standard deviation increase in the labor intensity of production technology leads to a 0.6 percentage point fall in the impact of pollution on productivity. I show that excess pollution results in costly output reductions among adversely affected industries but little reduction overall.

Development and Governance Seminar