Possibilities and limits of modelling of long-range economic consequences of air pollution - A case study

Air pollution is the biggest environmental problem in modern societies, causing considerable health damage and requiring substantial financial resources for health care. The goal of the study is to demonstrate the adverse economic consequences of air pollution on example of a small, open Central European country, Hungary, and to provide quantified financial arguments for macroeconomic decision-making for the development of a long-term energy strategy. On the basis of the Cobb-Douglas production function and Solow-Swann model of dynamic economic systems a simple and robust model was constructed to estimate and predict economic losses, caused by the pollution. On base of results it is obvious, that on base of macroeconomic theory and combination of various, publicly available, quality-controlled statistical resources quantifiable models can be constructed to characterise the economic consequences of air pollution, but it should be taken into consideration, that the reliability of economic models considerably depends on their initial parameters and practical validity of assumptions, based on which the underlying economic theories were built. The most important economic burden of air pollution is caused by the loss of working-age population, resulting in a decrease of 4.1-9.4 % a year in Gross Domestic Product (GDP) in the next fifty years. The additional burden of health care costs amounts to 0.1 % of GDP. Reducing air pollution is not only a quality of life improvement but also an investment into the economic development. Notwithstanding of statistical biases it could be proven the importance of combination health economic and econometric methods in preparation of more efficient environmental-related socio-economic decisions.