Haze pollution and economic fluctuations: An empirical analysis of Chinese cities

Abstract

Haze pollution affects not only regular production and normal consumption but also economic vitality and fluctuations. Using panel data on 254 cities in China at the prefecture level from 2000 to 2016, we investigate the characteristics and mechanisms of haze pollution that affect economic fluctuations. We find that haze pollution can inhibit economic fluctuations, which is robust even after considering endogeneity, substituting variables, and taking spatial correlation into account. After employing a mediating effect model, we find that haze pollution can affect economic fluctuations through the channels of reducing enterprise performance and blocking foreign direct investment. Because the characteristics of different types of cities vary, we also find that the inhibiting effect of haze pollution on economic fluctuations is mainly found in resource-based cities, non-vice-provincial cities and in the cities in northeast, central, and western regions. These results not only enrich the research concerning the impact of haze pollution on macroeconomic volatility but also shed light on how to promote the ecological civilization and high-quality development of the Chinese economy.