Environmental Pollution, Health, and Economic Development: A Human-Capital Perspective

Environmental pollution may affect economic development by damaging population health and reducing the productive use of human capital. This paper develops a simple framework in which pollution raises the cost of maintaining health, lowers effective human capital, and weakens productive capacity. Using cross-country data on PM2.5 exposure, mortality, education, energy use, and GDP per capita, we examine the relationships implied by this mechanism. Instrumental-variable specifications using PM2.5 exposure as an instrument for mortality show a sizeable negative conditional relationship between mortality and income per capita in parsimonious models. The coefficient on log mortality ranges from about −0.67 to −0.83 after accounting for climatic and broad regional differences. These estimates are complementary evidence consistent with the proposed mechanism and depend on a strong exclusion restriction. When education and energy use are both included, the coefficient falls to approximately −0.17 and is no longer statistically significant at conventional levels. Common-sample comparisons show that this attenuation is not driven primarily by the loss of countries from the estimation sample. The parsimonious specifications therefore show a sizeable conditional mortality–income relationship, while the fullest specification provides much weaker evidence for an independent relationship between mortality and income. The results are consistent with a link between pollution, population health, human capital, and economic development, but they do not establish a mortality-only causal effect.