The Economic Determinants of Air Quality: An Empirical Test Based on VAR Model

By employing generalized impulse response function and variance decomposition analysis, which are based on VAR model, this paper explores the economic reason for air quality and the dynamic characters of each correlated economic variable and air pollution by using a Chinese time series data set during 1986-2007. The results indicate that the effect of economic scale, energy structure and economic composition to air pollution is positive and persistent, but that of environmental policy and technological progress is negative and temporary. The results from variance decomposition suggest that a fair portion of fluctuations in SO₂ emissions is explained by economic scale, energy structure and environmental policy, but the contribution of technical progress is narrow.