QUANTIFYING SMOG’S HEALTH COSTS IN PAKISTAN: POLLUTION, URBANIZATION, AND GOVERNANCE IN AN INTEGRATED ECONOMIC FRAMEWORK

Abstract

Pakistan’s rapid urbanization drives economic growth but exacerbates smog-related healthcare costs, with governance’s mitigating role poorly understood. This study integrates Pigou’s externalities and North’s institutional economics to quantify how PM2.5, CO2 emissions, GDP per capita, urbanization, and governance effectiveness shape healthcare costs in Pakistan (2004–2023). Using World Bank data, we employ an ARDL model with bounds testing, Granger causality, and variance decomposition, accommodating mixed stationarity and confirmed via ADF robustness checks. Results show PM2.5 (β=0.201, p=0.018) and CO2 emissions (β=36.469, p=0.018) significantly increase healthcare costs, amplified by urbanization (β=8.995, p=0.037). Governance effectiveness (β=15.172, p=0.041) mitigates long-run impacts but not short-run, revealing a critical policy lag. Collectively, these findings advance environmental economics by merging market and institutional perspectives, urging policymakers to prioritize governance reforms and urban planning for cost-effective health interventions. This framework offers a replicable model for sustainable development in low-income settings.