Gray matters: Fetal pollution exposure and human capital formation

This paper examines the impact of fetal exposure to air pollution on fourth-grade test scores in Santiago, Chile. We rely on comparisons across siblings which address concerns about locational sorting (for nonmovers) and all other time-invariant family characteristics that can lead to endogenous exposure to poor environmental quality. We also exploit data on air quality alerts to help address concerns related to short-run time-varying avoidance behavior, which has been shown to be important in a number of other contexts. We find a strong negative effect from fetal exposure to carbon monoxide (CO) and correlated pollutants (like PM10) on math and language skills measured in fourth grade. These effects are economically significant, and our back-of-the-envelope calculations suggest that the 50% reduction in CO in Santiago between 1990 and 2005 increased lifetime earnings by approximately US$100 million per birth cohort.