tiểu luận kinh tế lượng ECONOMETRICS REPORT AIR QUALITY AND ITS DETERMINANTS

It could be seen through years that, average daily value 24 hours of many days within a year in some locations in big cities is 1.5 - 2 times higher than the allowed levels; the number o

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS

ECONOMETRICS REPORT:

AIR QUALITY AND ITS DETERMINANTS

Class : Japanese-style International Business – K57

Members : Nguyễn Khánh Linh – 1815520193

Phùng Bích Loan – 1815520198

Đỗ Quỳnh Trang – 1810520228

Instructor : Ph.D Từ Thúy Anh

Hanoi – October, 2019

TABLE OF CONTENTS

ABSTRACT 3

INTRODUCTION 4

I/ LITERATURE REVIEW 6

II/ THEORETICAL BACKGROUND 9

1 Air quality: 9

2 Determinants of air quality: 9

III/ DESCRIPTIVE STATISTIC OF DATA 12

IV/ ECONOMETRIC MODEL 14

V/ ROBUSTNESS CHECK 18

1 Multicollinearity 18

2 Normality of residual: 20

3 White’s test for heteroskedasticity 21

4 T - test of the hypothesis relating to a regression coefficient 22

VI/ ADJUSTED MULTIPLE REGRESSION MODEL: 24

VII/ FINDING AND DISCUSSION: 25

CONCLUSION 27

REFERENCES 28

ABSTRACT Our topic is “Air quality and its determinants” We collected our data from

GRETL (data Ramanathan 7-10: 30 Standard Metropolitan Statistical Areas (SMSAs) in California, compiled by Susan Wong for 1970 – 1972.) This report includes eight main

parts (Literature review, Theoretical background, Descriptive statistic of data, Econometric model, Robustness check, Finding and Discussion, Conclusion) Our report aims at:

• Providing a clear sight about theoretical and method that we use to analyze information through Literature review and Theoretical background About data and objectives that we focus on, we explain those data in descriptive statistic of data

• Running and checking the model if there are problems about variables or results through Econometric model and Robustness check

• Discussing about model and recommend solution to have clear model and efficient

in reality by Finding and Discussion

• Summing up our report by Conclusion

INTRODUCTION

Pollution is now a commonplace term, that our ears are attuned to We hear about the various forms of pollution and read about it through the mass media Air pollution is one such form that refers to the contamination of the air, irrespective of indoors or outside

Air is essential for life itself; without it we could survive only a few minutes It constitutes immediate physical environment of living organisms It is a mixture of various gases like nitrogen, oxygen and carbon dioxide, and others in traces; along with water vapour perceptible as humidity and suspended solids in particulate form A physical, biological or chemical alteration to the air in the atmosphere can be termed as pollution It occurs when any harmful gases, dust, smoke enters into the atmosphere and makes it difficult for plants, animals, and humans to survive as the air becomes dirty Air pollution is a mix of particles and gases that can reach harmful concentrations both outside and indoors Its effects can range from higher disease risks to rising temperatures Soot, smoke, mould, pollen, methane, and carbon dioxide are a just few examples of common pollutants

In societies that are rapidly developing sufficient resources may not be invested in air pollution control because of other economic and social priorities The rapid expansion

of the industry in these countries has occurred at the same time as increasing traffic from automobiles and trucks, increasing demands for power for the home, and concentration of the population in large urban areas called mega cities The result has been some of the worst air pollution problem in the world In many traditional societies, and societies where crude household energy sources are widely available, air pollution 7 is a serious problem because of inefficient and smoky fuels used to heat buildings and cook This causes air pollution both out door and indoors The result can be lung disease, eye problems, and increased risk of cancer

Worldwide, bad outdoor air caused an estimated 4.2 million premature deaths in

2016, about 90 percent of them in low- and middle-income countries, according to the World Health Organization Indoor smoke is an ongoing health threat to the 3 billion people who cook and heat their homes by burning biomass, kerosene, and coal Air pollution has

been linked to higher rates of cancer, heart disease, stroke, and respiratory diseases such as asthma In the U.S nearly 134 million people—over 40 percent of the population—are at risk of disease and premature death because of air pollution, according to American Lung Association estimates Air pollutants cause less-direct health effects when they contribute

to climate change Heat waves, extreme weather, food supply disruptions, and other effects related to increased greenhouse gases can have negative impacts on human health The U.S

Fourth National Climate Assessment released in 2018 noted, for example, that a changing climate "could expose more people in North America to ticks that carry Lyme disease and mosquitoes that transmit viruses such as West Nile, chikungunya, dengue, and Zika."

In Vietnam, according to incomplete statistics, in recent years, the number of patients relating to air pollution is increasing The number of children hospitalised for asthma treatment, respiratory bacteria, and cough in some hospitals in Hanoi and Ho Chi Minh City has increased many times According to medicinal specialists’ forecast, the number of cancer cases including lung cancer in Vietnam will increase significantly in the next 5 years In some big urban areas in Viet Nam, the continuous automatic monitoring system shows that the PM2.5pollution is the most serious problem for air pollution It is a very difficult issue not only for Viet Nam but also of many Asian countries The pollution assessment can be carried out through the comparison of average daily monitoring data and average annual monitoring data to the allowed levels It could be seen through years that, average daily value (24 hours) of many days within a year in some locations in big cities

is 1.5 - 2 times higher than the allowed levels); the number of days having average daily value higher than the allowed level is increasing through years; average hourly value within

a day changes, mostly highest in peak hours when the density of cars and motorbikes is high in the streets In some days, the value is even three to four times higher than the allowed level It could be seen that, air pollution issue in some urban areas of Viet Nam is very problematic when the average value and the annual value higher than the allowed level increase As air pollution is a very concerning problem not only in Vietnam but also

on a global scale, our team decided to choose this topic

I/ LITERATURE REVIEW

Our main purpose in this report is the explore the correlation between air quality and other factors There are numerous studies and articles that examine the relationship between air quality and its determinants, yet there are not many articles that can adequately illustrate the positive or negative correlation between them In addition, we are going to demonstrate it in this report through practicing econometric knowledge

Before going deeply into the analyzing process, we looked at numerous studies and

articles to understand the definition of air quality, and how the good & poor state of air can affect the surrounding According to British Columbia (BC), the term “air quality”

means the state of the air around us Good air quality refers to clean, clear, unpolluted air

Clean air is essential to maintaining the delicate balance of life on this planet — not just for humans, but wildlife, vegetation, water and soil Poor air quality is a result of a number

of factors, including emissions from various sources, both natural and “human-caused.”

Additionally, we examined the determinants that can directly impact the quality of the air Our first reading was “Clean Air in the UK” on air-quality.org.uk, which

mentioned Topography, Weather conditions, Exposure to pollution, Time and Pollution emissions as the main factors affecting the air quality The article proposed that there are many factors that affect air quality, making the search for clean air quite a complicated issue This is because air pollution enters the atmosphere by different amounts at different times and in various places Air pollutants may also change in the atmosphere to make other pollutants In addition, people can have differing sensitivities to air pollutants For example, the elderly, the very young and those with asthma or other breathing difficulties are likely to be more sensitive to high levels of pollutants The article demonstrated quite adequately the relationship as well as the correlation, however, the structure of the article made it hard for the readers to follow There is no classification of factors, and the factors have yet fully listed

According to Matt Williams in “What Causes Air Pollution?” (Universe Today,

Whereas primary pollutants are caused by primary sources – i.e the direct result of processes (such as industrial emissions or volcanic eruptions) – secondary pollutants are the results of intermingling and reactions by primary pollutants (such as carbon emissions and water vapor, which creates smog) In other words, we can divide the factors into two types: natural causes and anthropogenic causes The natural causes include Dust and wildfires, Animal and vegetation, Volcanic activity; the anthropogenic factors include Fossil-fuel emissions, Waste and Agriculture and animal husbandry However, the anthropogenic factors are still missing a lot of human-caused factors, which made us not fully satisfied with the determinants listed in the article

Rainald Borck, Philipp Scharauth, Munih Society for the Promotion of Economic Research, in “Population density and urban air quality” went deep into one particular

matter – population and its density They find that increasing population density by one standard deviation can increase PM10 (particulate matter with diameter less than 10PM)

by about 3 percent and NO2 by around 12 percent The study thus contributes to knowledge about the economic costs of agglomeration However, there is much less robust evidence

on the costs of agglomeration

In “The relationship between air pollution emission and income: US Data” by Richard T.Carson, Yongil Jeon and Donald R.McCubbin, they showed another interesting

aspect of how the quality of the economy can affect the air quality To be specific, the individual income can be of great contribution to the quality of the air The article used data from the 50 US states to find that emissions per capita decrease with increasing per capita income for all seven major classes of air pollutants… Without exception, the high-income states have low per capita emissions while emissions in the lower-income states are highly variable Questions still remain as to why this relationship exits

“Air pollution and poverty: Does the sword cut both ways?” (2003) by F.W.Lipfert,

J Epidemiol Community Health also demonstrated similar perspective In many

industrialized nations (including the United Sates) poverty leads to substandard medical

care, substandard nutrition, substandard housing, and reliance on inefficient and excessively polluting vehicles and heating and cooking appliance

As mentioned in World Energy Outlook Special report “Energy (Electric) and Air Pollution”, International Energy Agency, the energy usage can also be listed as one

determinants of the air quality The energy sector is the largest contributor to emissions of air pollutants in the United States and ongoing efforts to combat air pollution are in the contect of its rapid transformation

After extensive reading, our list of factors that can affect the air quality: Population

& its density, precipitation, coastal locations, individual income, poverty, electricity usage, and industrial factors eg Fuel oil, value added in manufacturing and industrial establishments We divided it into two types: natural determinants (precipitation and coastal locations), and human-caused determinants (population, density, income, poverty, electricity usage, and industrial factors) We came to realization that population, density, and precipitation can have a positive correlation with air quality, while the rest of the determinants have the negative correlation The detailed of our findings would be illustrated in detailed below

II/ THEORETICAL BACKGROUND

1 Air quality:

“Air quality” refers to the condition of the air within our surrounding Good air quality pertains to the degree which the air is clean, clear and free from pollutants such as smoke, dust and smog among other gaseous impurities in the air Air quality is determined

by assessing a variety of pollution indicators Good air quality is a requirement for preserving the exquisite balance of life on earth for humans, plants, animals and natural resources As such, human health, plants, animals and natural resources are threatened when pollution in the air reach high concentrations

Poor air quality can affect or harm human health and/or the environment Air quality can be degraded by natural or man-made sources Natural sources include volcanic eruption, windstorm dust Man-made source include pollution from moving vehicles, toxic gases from industries, coal powered plants, burning wood or other material in open air, landfills

Both these sources can seriously affect the overall air quality and can lead to severe health problems for humans

2 Determinants of air quality:

2.1 Population:

The larger population means bigger weight of air quality Many people cook and heat by using fuels that dramatically pollutes air quality, which increases the level of household air pollution Moreover, vehicles also strongly impact on the air qualiy

Pollution from automobiles is clearly visible in every city of the world Vehicles run on fossil fuels such as petroleum and gasoline that emit soot and harmful gases such as CO and NOx which are among the major air pollutants in the environment

2.2 Density:

Larger number of density means bigger weight of air quality The dense population results in bad air quality because of emissions from vehicles, factories, low-tech heating

tools, etc The cities often suffer from bad air quality than rural areas where there are less people living, which means less pollutants emitted to the air

2.3 Precipitation:

Higher rainfall rate results in bigger weight of air quality Rainfall is recognized as one of the main mechanisms to reduce atmospheric particulate pollution, which typically results in less pollution since it washes away particulate matter and can also wash out pollutants that are dissolvable

The higher medium per capita income results in the lighter weight of air quality

People having higher income are likely to have lower emissions than people having lower income due to better living standards They normally use equipment that is eco-friendly

2.6 Poverty:

The higher percentage of poor families leads to lighter weight of air quality Nearly 92% of pollution-related deaths occur in low- and middle-income countries They regularly use vehicles, equipment which negatively affect air quality This accelerates the level of air pollution

2.7 Electricity usage:

The more electricity consumed by industrial manufacturers, the lighter the weight

of air quality Almost all forms of electricity generate waste For example, natural gas releases carbon dioxide and nitrogen oxide Earth's atmosphere traps these gases, leading

to air pollution and smog

2.8 Fuel oil:

The more barrels of fuel oil consumed in industrial, the lighter weight of air quality

Oil and gas production, processing, and use also release large quantities of greenhouse gases, especially methane and carbon dioxide, which has significant impacts on air quality

2.9 Value added by industrial manufacture:

The more value added by industrial manufacture, the lighter weight of air quality

Factories are to blame for as much as 2/3rds of the pollution that has caused climate change

Industrial factories have played a big part in the amount of air pollution that we as people have to endure The toxic gases that factories release into the air, combined with those added by automobiles on the road, mean that we have an increased risk of developing chronic respiratory disease, lung cancer, heart disease and many other illnesses, diseases and conditions Air pollution also has an effect on our wildlife and again could lead to species of plants and animals one day being made extinct

2.10 Industrial establishments:

The higher number of industrial establishments, the lighter weight of air quality

Large acres of perfectly good land are destroyed in order to build either a mall, factory, or some other upscale building These industrial establishments that contain hazardous materials inside sometimes have leaks in which the fuel and energy stored in the factories seep through into the ground under the building, which eventually contaminate the air quality

III/ DESCRIPTIVE STATISTIC OF DATA

The analysis is based on 30 observations from 30 Standard Metropolitan Statistical Areas (SMSAs) in California, compiled by Susan Wong for 1970 – 1972 Thus, this date

is cross-sectional data, without any aspects of time Details of data are attached in Appendix part at the end of the assignment

Below is abbreviation of variables under consideration with their range:

Independent variable coast =1 for SMSA’s on the coast, 0 otherwise

Independent

100 times the percentage of families with income less than poverty levels (Range 117 – 1939)

model Therefore, in the next part, in the aid of Gretl we will test the model and adjust to

find out which regressors really have an effect on the air quality, however, with the limited numbers of observation, we do not expect the R-squared to be so high, just around 0,3 to 0,5

IV/ ECONOMETRIC MODEL

As listed on the table, we can see that there are multiple elements, which affect the air quality; therefore, we must use the Multiple Regression Analysis In this research, there

are 10 independent variables, namely popln, valadd, rain, coast, density, medincm, poverty, electr, fuelloil, indestab, const To analyze and test the effect of these variables on the level

of air quality, we find out the Coefficients using Ordinary Least Square (OLS) method with the Best Linear Unbiased Estimator (BLUE) assumption The table below shows the multiple regression result among the variables:

From the table above, in the first place, we have:

Model 1:

airquality = 98,863 + 0,09 popln – 0,024 valadd + 0,24 rain – 34,6 coast + 0,00028 density - 0,014 medincm – 0,0116 poverty – 0,023 electr – 0,0016 fueloil – 0,01 indestab

• According to the result, the Adjusted R- squared = 0,42201, it means that nearly

42,2% of the variance of airquality are explained by the OLS regression line, this