Understanding the health impact of air pollution is critical for understanding the benefit of environmental regulations. While there is a rich literature from epidemiology and economics that quantify the mortality risk of air pollution, the morbidity impact of air pollution especially in developing countries is not well understood. This paper examines both the short-and long-term impacts of PM 2.5 on morbidity based on daily card spending in hospitals and drugstores in nearly 300 cities. To

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... ess the potential endogeneity in air pollution, we construct an IV by leveraging the spatial spillovers of air pollution due to long-range transport. Our analysis shows that PM 2.5 has significant impacts on health spending in both short term (within a week) and longer term (within three months). A reduction of 10 µg/m 3 in daily PM 2.5 could lead to a total annual savings of at least 75 billion yuan ($11 billion) in health spending in China. BIOGRAPHICAL SKETCH Deyu Rao was born in Jining, an inland industrial city in China. Living next door to a coal-fired power plant throughout his childhood, Deyu's experience has nurtured his interest in environmental and energy issues. Before coming to Cornell, he completed his undergraduate degree in Renmin University in 2015, majoring in energy economics. iii ACKNOWLEDGEMENTS I would like to thank my family for their enormous support through my master's study. I wish to express my sincere gratitude to my advisors, Prof. Shanjun Li and Prof. Panle Jia Barwick, for their guidance and wisdom throughout the project.