Blowing in the wind: The impact of Chinaʹs Pearl River Delta on Hong Kongʹs air quality

The local versus regional nature of Hong Kongʹs air pollution remains an unresolved issue with important policy implications. Specifically, the potential benefits of different air quality improvement efforts will vary dramatically, depending upon the nature of the pollution. This multi-disciplinary paper attempts to resolve the issue, using a time series, cross-sectional panel of pollution data from Hong Kong and southern China, along with weather variables from Hong Kong. An econometrically-based structural model of Hong Kong pollution levels is constructed, and Granger causality tests are conducted. Then, using results from the structural model, the health impacts on Hong Kong residents of reductions in mainland Chinaʹs pollution are estimated and valued in economic terms. Results indicate that for the pollutants PM10 and NO2 causality runs in both directions, highlighting the regional nature of the air pollution problem. However, the potential health benefits resulting from reductions in southern Chinaʹs pollution are relatively small. In US dollar terms, the averted mortality benefits of a large China-focused clean up are approximately $40 million, but the benefits of a more modest Hong Kong-focused effort are nearly $200 million. The resulting policy implication is that Hong Kongʹs primary pollution control efforts should lie at the local level.