The impact of marine pollution on the probability of business failure: A case study of the Mar Menor lagoon

Abstract

The impact of coastal water quality and its interaction with business results is still an unexplored field. This study uses a probit model and estimates marginal effects to investigate the impact of chlorophyll a concentration in the Mar Menor (Spain) coastal waters on the probability of business failure of firms located in this area. This coastal area has been in a critical ecological condition since 1980 when intensive irrigation agriculture expanded to the surroundings of this salted lagoon. Therefore, identifying the most damaging productive activities is crucial to convince companies and policymakers to overcome this situation. The most remarkable findings of our study are the following. First, we find opposing geographical impacts on the probability of business failure for companies located on the Mar Menor coast: A location effect showing a decreasing probability of business failure for companies located near the Mar Menor and a pollution effect indicating an increased probability of failure due to proximity to water pollution. Second, we further identify the economic sectors in which the pollution effect outweighs the location effect. We find that most of the examined productive activities seem to be negatively affected by the pollution effect, overcoming the positive effect of being located near the Mar Menor. Third, marine eutrophication increases the probability of business failure for some economic activities but not for others. Concretely, agricultural and transport activities benefit from being near the coast despite the quality of the water. These firms’ probability of failure decreases when they are located near the sea), whereas a 1 mg/m3 increase of chlorophyll a raises the probability of business failure for accommodation services (8.4%), minor trade (9.5%), financial and real estate services (11%), and industrial and building activities (14.4%). This paper highlights the need to design effective environmental regulations to preserve the area of Mar Menor, considering the specific productive characteristics of the different agents. We highlight the sectors requiring additional incentives to implement pro-environmental strategies and reduce their contribution to environmental pollution. The main insights from this analysis are applicable to other coastal areas around the world that suffer from marine eutrophication due to human activities.