This study evaluates air pollution-related health impacts on the Chinese economy by using an expanded version of the Emissions Prediction and Policy Analysis model. We estimated that marginal welfare impact to the Chinese economy of ozone and particulate-matter concentrations above background levels increased from 1997 US$22 billion in 1975 to 1997 US$112 billion in 2005, despite improvements in overall air quality. This increase is a result of the growing urban population and rising wages that thus increased the value of lost labor and leisure. In relative terms, however, welfare losses from air pollution decreased from 14% of the historical welfare level to 5% during the same period because the total size of the economy grew much faster than the absolute air pollution damages. In addition, we estimated that particulate-matter pollution alone led to a gross domestic product loss of 1997 US$64 billion in 1995. Given that the World Bank's comparable estimate drawn from a static approach was only 1997 US$34 billion, this result suggests that conventional static methods neglecting the cumulative impact of pollution-caused welfare damage are likely to underestimate pollution-health costs substantially. However, our analysis of uncertainty involved in exposure-response functions suggests that our central estimates are susceptible to significantly large error bars of around ±80%
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