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Abstract:

CEP discussion paper
Air pollution and innovation
Felix Bracht and Dennis Verhoeven
November 2021
Paper No' CEPDP1817:
Full Paper (pdf)

Tags: air pollution; air quality; innovation; patent; productivity

Existing estimates of the economic costs of air pollution do not account for its effect on inventive output. Using two weather phenomena as instruments, we estimate this effect in a sample of 1,288 European regions. A decrease in exposure to small particulate matter of 0.17µg/m3 - the average yearly reduction in Europe - leads to 1.7% more patented inventions. After ruling out reallocation of human capital, inventor mortality and R&D expenditures as drivers of the effect, we conclude that air pollution's harm to economic output increases by at least 10% when accounting for innovation.