Does environmental pollution influence household asset allocation? Evidence from China

Area of Science:

• Environmental Economics
• Household Finance
• Urban Studies

Background:

• Growing urban environmental pollution, particularly PM2.5, poses significant risks to public health and economic well-being.
• Understanding household financial decision-making in response to environmental degradation is crucial for policy development.

Purpose of the Study:

• To establish a causal link between environmental pollution and household asset allocation decisions in China.
• To investigate the differential impacts of pollution on various asset types and socioeconomic groups.

Main Methods:

• Utilizing nationally representative household survey data and urban PM2.5 concentration data from China.
• Employing econometric models to address endogeneity and conduct robustness checks.

Main Results:

• Environmental pollution significantly reduces household demand for housing assets.
• Pollution exhibits an inverted U-shaped effect on the demand for risky assets.
• Lower-income households experience a greater decrease in financial assets and a smaller decrease in low-liquid assets compared to higher-income households.

Conclusions:

• Environmental pollution has a demonstrable causal effect on household asset allocation.
• Socioeconomic status mediates the impact of pollution on financial asset holdings, highlighting distributional concerns.
• Social interaction is identified as a potential mechanism influencing these economic responses to pollution.