Interface of Income, Health and Environment:An Econometric Investigation

This paper analyses interrelationships between per capita income, health and respirable particulate air pollution in a simultaneous equations framework for the Indian economy during the last 25 years. Four structural equations are postulated to explain changes in four endogenous variables (per capita GDP, life expectancy, incidence of respiratory diseases, and respirable particulate matter) in terms of several exogenous variables represented through indices of physical infrastructure, social infrastructure and air pollution. These indices are constructed by the principal components method. The model is postulated in loglinear form and estimated by the two-stage least-squares method using data for the Indian economy during 1980-81 through 2004-05. Although highly simplified, our model provides key insights into the nature of economic development in India. First, the respirable particulate pollution has had a high cost on income and health. The reduced form shows that a 1%increase in the air pollution index led to a decrease of 8% in per capita income, a decrease of 0.7% in life expectancy, and an increase of 19% in the number of cases of respiratory diseases. Second, the social infrastructure plays a more vital role in development than the physical infrastructure. While physical infrastructure is important for economic development it ranks last of our preference ordering, so there is need to pay more attention in providing for better social infrastructure and reducing particulate pollution.