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

It could be seen through years that, average daily value24 hours of many days within a year in some locations in big cities is 1.5 - 2 times higherthan the allowed levels; the number of

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

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 analyzeinformation through Literature review and Theoretical background About data andobjectives 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

Pollution is now a commonplace term, that our ears are attuned to We hear about thevarious forms of pollution and read about it through the mass media Air pollution is onesuch form that refers to the contamination of the air, irrespective of indoors or outside Air isessential for life itself; without it we could survive only a few minutes It constitutesimmediate physical environment of living organisms It is a mixture of various gases likenitrogen, oxygen and carbon dioxide, and others in traces; along with water vapourperceptible as humidity and suspended solids in particulate form A physical, biological orchemical alteration to the air in the atmosphere can be termed as pollution It occurs whenany 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 particlesand gases that can reach harmful concentrations both outside and indoors Its effects canrange 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 inair 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 fromautomobiles and trucks, increasing demands for power for the home, and concentration ofthe population in large urban areas called mega cities The result has been some of theworst air pollution problem in the world In many traditional societies, and societieswhere crude household energy sources are widely available, air pollution 7 is a seriousproblem because of inefficient and smoky fuels used to heat buildings and cook Thiscauses air pollution both out door and indoors The result can be lung disease, eyeproblems, 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 WorldHealth Organization Indoor smoke is an ongoing health threat to the 3 billion people whocook 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 asasthma In the U.S nearly 134 million people—over 40 percent of the population—are atrisk of disease and premature death because of air pollution, according to American LungAssociation estimates Air pollutants cause less-direct health effects when they contribute toclimate change Heat waves, extreme weather, food supply disruptions, and other effectsrelated 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 changingclimate "could expose more people in North America to ticks that carry Lyme disease andmosquitoes that transmit viruses such as West Nile, chikungunya, dengue, and Zika."

In Vietnam, according to incomplete statistics, in recent years, the number of patientsrelating to air pollution is increasing The number of children hospitalised for asthmatreatment, respiratory bacteria, and cough in some hospitals in Hanoi and Ho Chi Minh Cityhas increased many times According to medicinal specialists’ forecast, the number of cancercases including lung cancer in Vietnam will increase significantly in the next 5 years Insome big urban areas in Viet Nam, the continuous automatic monitoring system shows thatthe PM2.5pollution is the most serious problem for air pollution It is a very difficult issuenot only for Viet Nam but also of many Asian countries The pollution assessment can becarried out through the comparison of average daily monitoring data and average annualmonitoring 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 higherthan the allowed levels); the number of days having average daily value higher than theallowed level is increasing through years; average hourly value within a day changes, mostlyhighest in peak hours when the density of cars and motorbikes is high in the streets In somedays, 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 averagevalue and the annual value higher than the allowed level increase As air pollution is a veryconcerning problem not only in Vietnam but also on a global scale, our team decided tochoose this topic

I/ LITERATURE REVIEW

Our main purpose in this report is the explore the correlation between air qualityand other factors There are numerous studies and articles that examine the relationshipbetween air quality and its determinants, yet there are not many articles that canadequately illustrate the positive or negative correlation between them In addition, weare 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 Pollutionemissions as the main factors affecting the air quality The article proposed that there aremany factors that affect air quality, making the search for clean air quite a complicatedissue This is because air pollution enters the atmosphere by different amounts at differenttimes and in various places Air pollutants may also change in the atmosphere to makeother pollutants In addition, people can have differing sensitivities to air pollutants Forexample, the elderly, the very young and those with asthma or other breathing difficultiesare likely to be more sensitive to high levels of pollutants The article demonstrated quiteadequately the relationship as well as the correlation, however, the structure of the articlemade it hard for the readers to follow There is no classification of factors, and the factorshave yet fully listed

According to Matt Williams in “What Causes Air Pollution?” (Universe Today, 2016), air pollution can be divided into Primary and Secondary types of pollutants.

Whereas primary pollutants are caused by primary sources – i.e the direct result ofprocesses (such as industrial emissions or volcanic eruptions) – secondary pollutants arethe results of intermingling and reactions by primary pollutants (such as carbon emissionsand water vapor, which creates smog) In other words, we can divide the factors into twotypes: natural causes and anthropogenic causes The natural causes include Dust andwildfires, Animal and vegetation, Volcanic activity; the anthropogenic factors includeFossil-fuel emissions, Waste and Agriculture and animal husbandry However, theanthropogenic factors are still missing a lot of human-caused factors, which made us notfully 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 onestandard 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 toknowledge about the economic costs of agglomeration However, there is much lessrobust 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, theindividual income can be of great contribution to the quality of the air The article used datafrom the 50 US states to find that emissions per capita decrease with increasing per capitaincome for all seven major classes of air pollutants… Without exception, the high-incomestates have low per capita emissions while emissions in the lower-income states are highlyvariable 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 andexcessively 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 ofair pollutants in the United States and ongoing efforts to combat air pollution are in thecontect 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, electricityusage, and industrial factors eg Fuel oil, value added in manufacturing and industrialestablishments We divided it into two types: natural determinants (precipitation andcoastal 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 thedeterminants have the negative correlation The detailed of our findings would beillustrated in detailed below

II/ THEORETICAL BACKGROUND

1 Air quality:

“Air quality” refers to the condition of the air within our surrounding Good airquality pertains to the degree which the air is clean, clear and free from pollutants such assmoke, dust and smog among other gaseous impurities in the air Air quality isdetermined by assessing a variety of pollution indicators Good air quality is arequirement for preserving the exquisite balance of life on earth for humans, plants,animals and natural resources As such, human health, plants, animals and naturalresources are threatened when pollution in the air reach high concentrations

Poor air quality can affect or harm human health and/or the environment Airquality can be degraded by natural or man-made sources Natural sources include volcaniceruption, windstorm dust Man-made source include pollution from moving vehicles,toxic gases from industries, coal powered plants, burning wood or other material in openair, landfills Both these sources can seriously affect the overall air quality and can lead tosevere health problems for humans

2 Determinants of air quality:

2.1 Population:

The larger population means bigger weight of air quality Many people cook andheat by using fuels that dramatically pollutes air quality, which increases the level ofhousehold 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 onfossil fuels such as petroleum and gasoline that emit soot and harmful gases such as COand 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 populationresults 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 lesspeople 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, whichtypically results in less pollution since it washes away particulate matter and can alsowash out pollutants that are dissolvable

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 Theyregularly use vehicles, equipment which negatively affect air quality This accelerates thelevel 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 gasreleases 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 climatechange 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, combinedwith those added by automobiles on the road, mean that we have an increased risk ofdeveloping chronic respiratory disease, lung cancer, heart disease and many otherillnesses, diseases and conditions Air pollution also has an effect on our wildlife andagain 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, orsome other upscale building These industrial establishments that contain hazardousmaterials inside sometimes have leaks in which the fuel and energy stored in the factoriesseep through into the ground under the building, which eventually contaminate the airquality

III/ DESCRIPTIVE STATISTIC OF DATA

The analysis is based on 30 observations from 30 Standard Metropolitan StatisticalAreas (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 inAppendix part at the end of the assignment

Below is abbreviation of variables under consideration with their range:

Dependent airqual Weight of suspended particular matter (Range 59

Independent popln Population in thousands (Range 372 – 11529)

variable

Independent valadd Value added by industrial manufactures in 1972 (in

Independent rain Rainfall in inches (Range 12.63 – 68.13)

Independent poverty 100 times the percentage of families with income

Independent electr Electricity consumed by industrial manufacturers

Independent fuelloil Thousands of barrels of fuel oil consumed in

Independent indestab Number of industrial establishments with 20 or

The amount of observations is limited in the presence of 10 independent variablescan result in the “over- fitting” phenomenon and decrease quality of the multiple

regression 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 theair 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 tablebelow 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 + 0,00028density - 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