IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v48y2017icp280-288.html
   My bibliography  Save this article

Foreign capital, pollution control, and wage inequality in developing countries

Author

Listed:
  • Pi, Jiancai
  • Zhang, Pengqing

Abstract

This paper aims at studying how foreign capital and pollution control influence skilled-unskilled wage inequality in developing countries through three-sector general equilibrium models. In the basic model with urban unemployment, we find that an inflow of foreign capital will expand the skilled-unskilled wage inequality if the elasticity of substitution between labor and capital in the urban unskilled sector is large enough, and that stricter pollution control will expand the wage inequality if the elasticity of substitution between labor and pollution is small enough. In the extended model with full employment, we find that the intensity of capital plays a crucial role. In addition, when pollution externalities are taken into account, the main conclusions will not change significantly.

Suggested Citation

  • Pi, Jiancai & Zhang, Pengqing, 2017. "Foreign capital, pollution control, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 280-288.
    • Handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:280-288
    DOI: 10.1016/j.iref.2016.11.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S105905601630123X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2016.11.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Copeland, Brian R. & Taylor, M. Scott, 1999. "Trade, spatial separation, and the environment," Journal of International Economics, Elsevier, vol. 47(1), pages 137-168, February.
    2. Hamid Beladi & Saibal Kar & Sugata Marjit, 2013. "Emigration, Finite Changes and Wage Inequality," Economics and Politics, Wiley Blackwell, vol. 25(1), pages 61-71, March.
    3. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2010. "Foreign capital inflow, skilled-unskilled wage inequality and unemployment of unskilled labour in a fair wage model," Economic Modelling, Elsevier, vol. 27(1), pages 477-486, January.
    4. Zhang, Jingjing, 2012. "Inflow of labour, producer services and wage inequality," Economics Letters, Elsevier, vol. 117(3), pages 600-603.
    5. Hamid Beladi & Sarbajit Chaudhuri & Shigemi Yabuuchi, 2008. "Can International Factor Mobility Reduce Wage Inequality in a Dual Economy?," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 893-903, November.
    6. Wang, Leonard F. S., 1990. "Unemployment and the backward incidence of pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 292-298, May.
    7. Anwar, Sajid, 2006. "Factor mobility and wage inequality in the presence of specialisation-based external economies," Economics Letters, Elsevier, vol. 93(1), pages 88-93, October.
    8. Saibal Kar & Basudeb Guha‐Khasnobis, 2006. "Economic Reform, Skill Formation and Foreign Capital," The World Economy, Wiley Blackwell, vol. 29(1), pages 79-94, January.
    9. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
    10. Reza Oladi & John Gilbert & Hamid Beladi, 2011. "Foreign Direct Investment, Non‐Traded Goods And Real Wages," Pacific Economic Review, Wiley Blackwell, vol. 16(1), pages 36-41, February.
    11. Chaudhuri, Sarbajit, 2008. "Wage inequality in a dual economy and international mobility of factors: Do factor intensities always matter?," Economic Modelling, Elsevier, vol. 25(6), pages 1155-1164, November.
    12. Gupta, Manash Ranjan & Dutta, Priya Brata, 2010. "Skilled-unskilled wage inequality, nontraded good and endogenous supply of skilled labour: A theoretical analysis," Economic Modelling, Elsevier, vol. 27(5), pages 923-934, September.
    13. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    14. Paul Lehmann, 2012. "Justifying A Policy Mix For Pollution Control: A Review Of Economic Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 71-97, February.
    15. Kar, Saibal & Beladi, Hamid, 2004. "Skill formation and international migration: welfare perspective of developing countries," Japan and the World Economy, Elsevier, vol. 16(1), pages 35-54, January.
    16. Marjit, Sugata & Kar, Saibal, 2005. "Emigration and wage inequality," Economics Letters, Elsevier, vol. 88(1), pages 141-145, July.
    17. Yu, Eden S. H. & Ingene, Charles A., 1982. "The backward incidence of pollution control in a rigid-wage economy," Journal of Environmental Economics and Management, Elsevier, vol. 9(4), pages 304-310, December.
    18. Anwar, Sajid, 2008. "Labour supply, foreign investment and welfare in the presence of public infrastructure," Economic Modelling, Elsevier, vol. 25(5), pages 959-967, September.
    19. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    20. Hamid Beladi & Avik Chakrabarti & Sugata Marjit, 2010. "Skilled‐Unskilled Wage Inequality And Urban Unemployment," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 997-1007, October.
    21. Satya P. Das, 2005. "Gradual globalization and inequality between and within countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 852-869, August.
    22. Kenji Kondoh & Shigemi Yabuuchi, 2012. "Unemployment, environmental policy, and international migration," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(5), pages 677-690, October.
    23. Yabuuchi, Shigemi & Chaudhuri, Sarbajit, 2007. "International migration of labour and skilled-unskilled wage inequality in a developing economy," Economic Modelling, Elsevier, vol. 24(1), pages 128-137, January.
    24. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    25. Beladi, Hamid & Samanta, Subarna K, 1988. "Factor Market Distortions and Backward Incidence of Pollution Control," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 22(1), pages 75-83, March.
    26. Zhang, Jingjing, 2013. "Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties," Economic Modelling, Elsevier, vol. 30(C), pages 579-585.
    27. Xiaodong Wu, 2001. "The impact of foreign direct investment on the relative return to skill," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(3), pages 695-715, November.
    28. Yohe, Gary W., 1979. "The backward incidence of pollution control--some comparative statics in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 6(3), pages 187-198, September.
    29. Das, Satya P., 2002. "Foreign direct investment and the relative wage in a developing economy," Journal of Development Economics, Elsevier, vol. 67(1), pages 55-77, February.
    30. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Economic liberalization and wage inequality in the presence of labour market imperfection," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 592-603.
    31. Satya Das, 2005. "Gradual globalization and inequality between and within countries," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 852-869, August.
    32. Reza Oladi & Hamid Beladi, 2007. "International Migration and Real Wages," Economics Bulletin, AccessEcon, vol. 6(30), pages 1-8.
    33. Beladi, Hamid & Marjit, Sugata & Broll, Udo, 2011. "Capital mobility, skill formation and polarization," Economic Modelling, Elsevier, vol. 28(4), pages 1902-1906, July.
    34. Hamid Beladi & Ralph Frasca, 1999. "Pollution control under an urban binding minimum wage," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 33(4), pages 523-533.
    35. Makoto Tawada & Shuqin Sun, 2010. "Urban Pollution, Unemployment and National Welfare in a Dualistic Economy," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 311-322, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chaudhuri, Sarbajit & Ghosh, Arnab & Banerjee, Dibyendu, 2018. "Can public subsidy on education necessarily improve wage inequality?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 165-177.
    2. Pengqing Zhang, 2019. "Skill formation, environmental pollution, and wage inequality," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(2), pages 405-424, April.
    3. Huang, Zhi & Cheng, Xiang, 2023. "Environmental regulation and rural migrant workers’ job quality: Evidence from China migrants dynamic surveys," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 845-858.
    4. Sarbajit Chaudhuri & Jayanta Kumar Dwibedi, 2022. "Anti‐immigration policy in developed countries: Welfare and distributional implications for developing economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 358-381, September.
    5. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.
    6. Dianshuang Wang & Hongyun Huang & Xin Zhao & Fang Fang, 2023. "Green technological progress, agricultural modernization, and wage inequality: Lessons from China," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1673-1698, August.
    7. Dianshuang Wang, 2019. "Manufacturing and agricultural pollution, private mitigation and wage inequality in the presence of pollution externalities," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(2), pages 51-58.
    8. Qin, Ming & Fan, Lin-feng & Li, Jing & Li, Yi-fei, 2021. "The income distribution effects of environmental regulation in China: The case of binding SO2 reduction targets," Journal of Asian Economics, Elsevier, vol. 73(C).
    9. Kuo‐Hsing Kuo & Shang‐Fen Wu & Cheng‐Te Lee, 2022. "The impact of environmental policy on wage inequality," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 472-485, December.
    10. Chi‐Chur Chao & Leonard F. S. Wang, 2022. "Corporate governance, firm dynamics, and wage inequality," Manchester School, University of Manchester, vol. 90(3), pages 341-353, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kuo‐Hsing Kuo & Shang‐Fen Wu & Cheng‐Te Lee, 2022. "The impact of environmental policy on wage inequality," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 472-485, December.
    2. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
    3. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    4. Pan, Lijun, 2014. "The impacts of education investment on skilled–unskilled wage inequality and economic development in developing countries," Economic Modelling, Elsevier, vol. 39(C), pages 174-181.
    5. Pengqing Zhang, 2019. "Skill formation, environmental pollution, and wage inequality," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(2), pages 405-424, April.
    6. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    7. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    8. Pi, Jiancai & Zhang, Pengqing, 2018. "Skill-biased technological change and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 347-362.
    9. Anwar, Sajid & Sun, Sizhong, 2012. "Trade liberalisation, market competition and wage inequality in China's manufacturing sector," Economic Modelling, Elsevier, vol. 29(4), pages 1268-1277.
    10. Jiancai Pi & Yu Zhou, 2015. "The impacts of corruption on wage inequality and rural–urban migration in developing countries," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 753-768, May.
    11. Sun, Sizhong & Anwar, Sajid, 2015. "Taxation of labour, product varieties and skilled–unskilled wage inequality: Short run versus long run," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 250-257.
    12. Gupta, Manash Ranjan & Dutta, Priya Brata, 2011. "Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(4), pages 1977-1983, July.
    13. Pi, Jiancai & Chen, Xuyang, 2016. "The impacts of capital market distortion on wage inequality, urban unemployment, and welfare in developing countries," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 103-115.
    14. Manash Ranjan Gupta & Priya Brata Dutta, 2018. "Skilled-unskilled wage inequality and structural transformation in a dual economy," Indian Economic Review, Springer, vol. 53(1), pages 311-332, December.
    15. Anwar, Sajid & Rice, John, 2009. "Labour mobility and wage inequality in the presence of endogenous foreign investment," Economic Modelling, Elsevier, vol. 26(6), pages 1135-1139, November.
    16. Pi, Jiancai & Zhang, Pengqing, 2016. "Hukou system reforms and skilled-unskilled wage inequality in China," China Economic Review, Elsevier, vol. 41(C), pages 90-103.
    17. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
    18. Pi, Jiancai & Zhou, Yu, 2012. "Public infrastructure provision and skilled–unskilled wage inequality in developing countries," Labour Economics, Elsevier, vol. 19(6), pages 881-887.
    19. Priya Brata Dutta & Nirjhar Ghosh, 2021. "Wage Inequality and Unemployment in the Presence of Imported Intermediate Goods: A Theoretical Analysis," Foreign Trade Review, , vol. 56(4), pages 375-399, November.
    20. Chaudhuri, Sarbajit & Ghosh, Arnab & Banerjee, Dibyendu, 2018. "Can public subsidy on education necessarily improve wage inequality?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 165-177.

    More about this item

    Keywords

    Foreign capital; Pollution control; Wage inequality; General equilibrium approach;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:280-288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.