Is Pollution a Cost to Health? Theoretical and Empirical Inquiry for the World’s Leading Polluting Economies

Making development sustainable in the long run is the goal of policy makers of countries all over the world. To attain such a goal, countries have to face the dynamics of pollution-income interactions in both the short and long run, which are observed along the well-known Environmental Kuznets Curve (EKC). In the short run stage of the EKC, rising income and rising health expenditure may lead to rising pollution, while in the long run, as pollution continues, health expenditures increase, besides conservation of capital investment. The former is a common phenomenon in developing economies and the latter in the developed economies. Hence, there are both theoretical and empirical questions on whether health expenditures are caused by environmental pollution or not. The present study has attempted to investigate the issue from the theoretical point of view, through the endogenous growth framework, and by considering empirical observations for the world’s top 20 polluting countries for the period 1991–2019. The results show that per capita health expenditure and per capita pollution are cointegrated in the majority of the countries. However, in the short run, pollution is the cause of health expenditures for many developed countries in the list, and health expenditures are the cause of pollution in some of the developing countries. The results justify the claim of the endogenous growth model incorporating pollution and health expenditure.