Urbanization and economic freedom - are they threats to air quality? : Evidence from a panel study of low and lower-middle-income countries

Abstract: Air pollution (in terms of PM2.5) is severe in developing countries, and the rapid population growth accompanied by urbanization may limit their potential economic development. This paper aims to investigate if urbanization and economic freedom cause higher levels of PM2.5 in developing countries. By measuring the potential effect of economic freedom on PM2.5 with the Ease of Doing Business-score by the World Bank, a new measure is introduced to the research on socioeconomic factors’ influence on air pollution. It is done by running both fixed effects- and system GMM regressions on a panel consisting of 63 low- and lower-middle-income economies between 2010-2017. The results indicate that PM2.5 is insensitive to changes in both variables and that urbanization’s effect on PM2.5 depends on the level of economic freedom and vice versa. However, both estimators may suffer from bias, and thus, the real relationship of urbanization and economic freedom on PM2.5 remains uncertain.