Air pollution causes over 5 million premature deaths each year. According to research con- ducted by the Global Burden of Disease project. The negative health consequences of breathing in high levels of fine particles in the air has been well-documented. Air pollution has been linked due increased risk of heart disease, respiratory illnesses, and cancer. In addition to health risks, new research is finding links between air pollution and non-health sectors like the stock market. The link between air pollution and negative health outcomes is well known. But the connection between those health effects and performance on non-health sectors is not as clear.
Air pollution can come in various forms including fine particles that are the byproducts of the burning of fossil fuels like coal and petroleum, off-gassing from building materials, tobacco smoke, and common allergens like pollen and mold. No matter where you live, you are likely ex- posed to a number of air pollutants, but a number of large cities have far worse levels of air pol- lution than other areas. Highly polluted cities can have levels of air pollution that surpass 300 micrograms per cubic meter. 25 micrograms per cubic meter is considered a relatively safe level of fine particles in the air. Breathing in high levels of fine particles in the air is linked to lung cancer, heart diseases, and various respiratory diseases. This link is quite clear with solid data showing higher levels of disease and mortality rates in areas with high air pollution.
While the health effects of air pollution are well-documented, the effect on non-health sec- tors has not been as well-studied. A recent study, published in the journal Energy Policy, con- cluded that air pollution from energy production in the United States caused approximately $131 billion in damages in 2011. Most of the costs relate to health care costs associated with diseases linked to air pollution. The World Bank estimated that air pollution costs the global economy $225 billion in lost labor income in 2013. Reduced agricultural output has wide-ranging effects on the food supply that goes beyond the health effects of individuals. Air pollutants like sulfur dioxide, ozone, and ammonia can cause injury to plants, resulting in smaller yields. This not only damages the incomes of farmers, but it also lowers the supply of food and in turn makes food more expensive for consumers.
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Most studies of air pollution are related to health and agricultural economics, but rarely go beyond those areas. Economics professor Anthony Heyes and other researchers from the Univer- sity of Ottawa studied the effects of air pollution on Wall Street. Using EPA air pollution data collected by a sensor near Wall Street, Heyes and his team found a correlation between high air pollution and a reduction in stock returns. Looking at the performance of the S&P 500, for every one standard deviation decrease in air quality, there was a 12 percent reduction in stock returns. It isn't entirely clear why this is happening, but is speculated by the authors of the study that lower air quality can dampen your emotional and cognitive state, resulting in lower on the job performance. Lower cognitive function is also linked to risk aversion, which is associated with lower returns in the stock market.
Air pollution is almost exclusively discussed in the context of negative health conse- quences and the loss in economic output due to those health effects. As the health effects are be- ginning to be well-established, we may begin to see more research into the effects of air pollution on non-health related fields like the study on the stock market by researchers from the University of Ottawa. The researchers found that higher air pollution resulted in lower returns from the stock market. If we can observe a correlation between air pollution and job performance not di- rectly related to major health effects, this could create more urgency among people, businesses, and policy makers to combat air pollution.
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