When the Dust Settles: Productivity and Economic Losses Following Dust Storms

Abstract

Despite increasing concerns about the effects of climate change on economic growth and prosperity, we have little, persuasive, causal empirical evidence to inform us about the severity of this damage. This paper proposes a new context, in terms of both geographic region and type of pollution, to measure the economic costs associated with climate change. We provide large-scale evidence of the economic impacts of dust storms in Iran by estimating the effect of random year-to-year variation in dust exposure on manufacturing firm productivity. Dust storms deposit in regions that are far away from their points of origin, providing a unique framework in which emissions have no interaction with local economies. Using data collected from a decade of dust storms at on-the-ground weather stations, and firm data provided by Iran’s Census of Industrial Plants, we find that firms with higher exposure to dust emission exhibit negative productivity responses: one additional day of dust storm in a year results in a decline in productivity of about 0.081%, an amount equivalent to $149 million across all firms or 0.04% of GDP of Iran. The negative impact of these storms intensifies as the outdoor area and labor size of a plant increase; the primary mitigating factors are wind speed and access to reliable transportation networks (railroad). Our estimates are robust to multiple specification checks and are precise. The analysis of the mechanisms suggests that productivity declines mainly due to adverse impacts of dust storms on the health of the workers and to disruptions in access to input and output markets. Our paper highlights the significant spillover of environmental emissions across countries with drivers that can be traced back to climate change and political unrest in the region which has hindered multiple anti-desertification projects.