Health Shocks under Hospital Capacity Constraint: Evidence from Air Pollution in Sao Paulo, Brazil

How responsive to health shocks are healthcare systems in the developing world? Developing countries are known to have both lower levels of hospital infrastructure and serious health shocks driven by air pollution. These shocks are transitory and may be marginal relative to other health demands, so healthcare systems might be able to manage them. On the other hand, with limited capacity hospitals may not be able to respond rapidly, possibly exacerbating health damages from pollution. In this study, we examine the consequences of health shocks induced by air pollution in a megacity in the developing world: Sao Paulo, Brazil. Using daily data on pediatric hospitalizations from 2015-2017, an instrumental variable approach based on wind speed, and a plausibly exogenous measure of hospital capacity constraints, we show that such transitory health shocks can disrupt healthcare services due to limited capacity, including for conditions seemingly unrelated to air pollution. Also, we cannot rule out severe deterioration of health outcomes.