In this study, the impact of air quality on consumer sentiment is estimated for major cities of Pakistan. Air pollution is a rising concern in Pakistan for the past few years. Apart from a direct impact on the health of households, and a significant risk to the environment; poor air quality has an impact on consumer sentiment in major cities of Pakistan. Consumer confidence survey conducted by the State Bank of Pakistan (SBP) is one of the leading indicators of economic activity. This survey primarily reflects consumers’ perceptions about the current economic conditions. The hypothesis whether poor air quality influences consumer sentiment is tested in this study. Consumer sentiment is measured by the Diffusion Index, while the Air Quality Index is used to capture air pollution. Using city fixed effects model on balanced panel data of 5 cities and 36 time periods (bi-monthly), the study estimates whether the consumer sentiment turns pessimistic (diffusion index decreases) in cities with higher air pollution. The coefficient of air pollution is statistically significant and is consistent in all specifications – reflecting that the quality of air pollution does impact consumer sentiment. Control variables such as dummies for floods, Covid, and terrorist attacks for each city are included in this study to gain improved model fit and address the problem of endogeneity.

Authors:
Syed Zulqernain Hussain, University of Otago, New Zealand

About the Presenter(s)
Syed Zulqernain Hussain is currently a PhD candidate at the University of Otago and on a sabbatical from State Bank of Pakistan where he is working as an Economist.

Connect on Linkedin
https://www.linkedin.com/in/syed-zulqernain-hussain-8b983521/

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