Pollution Exposure and Human Capital Formation
Human capital formation depends on many inputs. A growing amount of studies in public health and economics highlight the important role played by prenatal and early childhood health in this process. Since pollution adversely affects childhood health, the impacts of early-life pollution exposure on long-term human capital outcomes is of particular interest since pollution could have a sizable cost to society through its effects on the production of human capital.
This study merges data from the Chilean ministries of health and education with pollution and meteorological data to assess the impact of fetal exposure to carbon monoxide air pollution on human capital outcomes later in life, as measured by fourth grade test scores in Santiago, Chile.
Results show a strong negative effect from fetal exposure to carbon monoxide on math and language skills measured in fourth grade. These effects are economically significant and back-of-the-envelope calculations suggest the 50 percent reduction in CO in Santiago between 1990 and 2005 — a period when sustained economic growth and new environmental policy allowed Santiago to transition from high levels of pollution to more modest ones — increased lifetime earnings by approximately 100 million USD per birth cohort.
The evidence from this study is of direct policy relevance. To the extent academic achievement in school can be linked to labor productivity, this study develops a quantitative estimate of the social costs of pollution through its effects on human capital production and highlight the sizable benefits incurred from pollution abatement policies implemented during the last two decades. Carbon monoxide is regularly emitted as a byproduct of fossil fuel combustion and subject to regulation across the world. The human capital impacts from pollution along with any attending avoidance behaviors constitute additional costs that should be weighed against the relevant benefits from the generation of air pollution.