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Foreign direct investment, environmentally sound technology and informal sector

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  • Chaudhuri, Sarbajit
  • Mukhopadhyay, Ujjaini

Abstract

The paper examines the linkages between foreign direct investment, informal sector and transfer of environmentally sound technology (EST) in a developing economy in terms of a three-sector, full-employment general equilibrium model with an informal sector that produces a non-traded input for the formal final good producing sector. The same input is produced by another division of the formal sector, which generates less pollution than the informal sector since the former uses a different type of capital that embodies EST. The formal sector has to pay a penalty for using the output of the excessively polluting informal sector. In this scenario, the analysis finds that foreign capital inflow in the formal sector may accentuate pollution, even if it involves transfer of EST. This result can at least question the favorable environmental impact of FDI in a developing economy even if it involves transfer of EST.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 31 (2013)
Issue (Month): C ()
Pages: 206-213

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Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:206-213

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Pollution; Foreign capital; Environmentally sound technology; Informal sector; Formal sector; General equilibrium;

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References

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  1. Cristina Tébar Less & Steven McMillan, 2005. "Achieving the Successful Transfer of Environmentally Sound Technologies: Trade-related Aspects," OECD Trade and Environment Working Papers 2005/2, OECD Publishing.
  2. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
  3. He, Jie, 2006. "Pollution haven hypothesis and environmental impacts of foreign direct investment: The case of industrial emission of sulfur dioxide (SO2) in Chinese provinces," Ecological Economics, Elsevier, vol. 60(1), pages 228-245, November.
  4. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
  5. Luken, Ralph & Van Rompaey, Frank & Zigová, Katari­na, 2008. "The determinants of EST adoption by manufacturing plants in developing countries," Ecological Economics, Elsevier, vol. 66(1), pages 141-152, May.
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  12. Chandra, Vandana & Khan, M Ali, 1993. "Foreign Investment in the Presence of an Informal Sector," Economica, London School of Economics and Political Science, vol. 60(237), pages 79-103, February.
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  14. Khan, M. Ali, 1982. "Tariffs, foreign capital and immiserizing growth with urban unemployment and specific factors of production," Journal of Development Economics, Elsevier, vol. 10(2), pages 245-256, April.
  15. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2006. "Pollution and Informal Sector: A Theoretical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 363-378.
  16. Selim Cagatay & Hakan Mihci, 2006. "Degree of environmental stringency and the impact on trade patterns," Journal of Economic Studies, Emerald Group Publishing, vol. 33(1), pages 30-51, January.
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Cited by:
  1. Mandal, Biswajit, 2014. "Trade Reform, Environment and Intermediation: Implication for Health Standard," MPRA Paper 56524, University Library of Munich, Germany.

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