Early Life Exposure to Air Pollution, Cognitive Development, and Labor Market Outcome

Abstract

In this paper, I study the impact of early life exposure to air pollution caused by the 1997 Indonesian forest fires on cognitive ability, an important determinant of success in the labor market. To isolate the effect of pollution exposure, I use a difference-in-differences approach where exposure to pollution is determined by timing and region of birth. The results suggest that pollution lowered cognitive test score at age 8–9 years by 6 percent. I also estimate how this might translate into lost earnings on a different but comparable sample. The estimates suggest that natural disasters can reduce earnings by 5 to 8 percent by hampering cognitive ability. Lost earnings due to interrupted cognitive development could be an additional cost of exposure to air pollution.