The effect of financial crises on air pollutant emissions: An assessment of the short vs. medium-term effects.

This paper empirically investigates the impact of financial crises on air pollutant emissions (CO2, SO2, NOx and PM2.5). A panel data approach is used, including 419 financial crisis episodes in >150 countries over the period 1970-2014. The short- and medium-term effects of crises are estimated, using a GMM specification (for short-term) and the estimation of impulse response functions (for medium-term). Results show that in the short-term, as a consequence financial crises, emissions decrease for all gases except for PM2.5. In particular, emissions of CO2, SO2 and NOx decrease by 2.6, 1.8, and 1.7% respectively. However, in the medium-term, financial crises cause insignificant effect on emissions, or in some cases even lead to a 1-2% increase, cancelling out the initial benefit. Our analysis also shows that the effect of crises is larger in high income and upper-middle income countries. Moreover, recent crises had a larger short-term impact on air pollutants than crises in previous decades. Our results suggest that the beneficial impact of financial crises on air quality is short-lived. To preserve this beneficial impact in the long run and avert new negative post-crisis emission patterns and dynamics, policy responses to financial crises should encompass tighter environmental regulations and green investments.