Air Pollution and Health Expenditure: A Panel Data Analysis

Chenyu Xie

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.ECONOMICS

Faculty Research Mentor: Eli Kochersperger

Abstract:

This study examines whether PM2.5 air pollution causally increases national health expenditure as a share of GDP. Using panel data from 52 countries (2000–2020) and fixed effects regressions with quadratic time trends, I isolate within-country variation while controlling for global trends. Results show that higher PM2.5 raises health spending, but the marginal effect diminishes at higher pollution levels. These findings have important implications for environmental regulation and healthcare budgeting. A simple microeconomic framework, based on the Health Production Model, motivates the empirical specification and explains the diminishing marginal effects.