The macroeconomic burden of noncommunicable diseases associated with air pollution in China

While a few studies have tried to estimate the economic burden of noncommunicable diseases (NCDs) associated with air pollution, most previous studies have methodological limitations. For example, neither the cost of illness approach nor the value of a statistical life approach accounts for economic adjustment mechanisms (i.e., they do not include substitution of labor lost due to an illness with capital or other workers), and neither approach considers disease impact on physical and human capital. Furthermore, since new evidence shows that air pollution is also linked to diabetes, previous studies did not estimate the economic costs of diabetes associated with air pollution. The total economic costs of NCDs associated with air pollution under a comprehensive framework therefore remained unexplored.

This study uses a human capital-augmented production function framework to analyze and estimate the macroeconomic impact of NCDs associated with air pollution in China in 1990-2030 and in 2015-2030. It makes several contributions-beyond those of the extant literature-to understanding the economic burden of NCDs associated with air pollution. It does this by accounting for economic adjustment mechanisms and by incorporating human capital into the model.

In our framework, aggregate output is produced according to a human capital-augmented production function that accounts for the effects of projected disease prevalence. NCDs associated with air pollution affect the aggregate output through three pathways: 1) Mortality effect-when working-age individuals die from a disease, aggregate output decreases because physical capital is an imperfect substitute for the loss of human capital in the production process. 2) Morbidity effect-when working-age individuals suffer from a disease but do not die from it, their contribution to overall output also decreases depending on disease severity; for example, they might work fewer hours or with lower productivity, or they might retire earlier. We also incorporate age-specific human capital to account for education-related productivity differences between members of different cohorts who are differentially affected by NCDs. 3) Treatment cost effect-when households in which members suffer from a disease use part of their savings to cover the out-of-pocket share of their treatment costs, physical capital accumulation diminishes. Our estimates are based on the recently updated Global Burden of Disease epidemiology data, which identify four pathways through which air pollution affects health: cardiovascular diseases, respiratory diseases, cancer, and diabetes.

Total losses from NCDs associated with air pollution in China in 1990-2030 are estimated to be $1,137 billion (constant 2010 USD) and in 2015-2030 are estimated to be $499 billion (constant 2010 USD). Cardiovascular diseases account for the highest burden, followed by chronic respiratory diseases, diabetes, and cancer. Treatment costs account for nearly 30% of the total economic burden of NCDs associated with air pollution. We also find that the share of economic burden associated with treatment costs is highest for diabetes. This is mainly driven by the fact that, on a per case basis, diabetes has a lower health burden than other diseases associated with air pollution.

The NCDs associated with air pollution impose a large economic burden on China.