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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 in the form of a production tax 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. Secondly, there might exist a positive relationship between pollution and national income in the economy both in the presence and absence of transfer of EST. These results can at least question the desirability of transfer of EST and also give theoretical explanations behind the existence of a positively sloped segment in the Environmental Kuznets Curve.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31447.

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Date of creation: 17 May 2011
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Handle: RePEc:pra:mprapa:31447

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Keywords: Pollution; foreign capital; environmentally sound technology; informal sector; formal sector; Environmental Kuznets Curve; general equilibrium;

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  1. Erik Dietzenbacher & Kakali Mukhopadhyay, 2007. "An Empirical Examination of the Pollution Haven Hypothesis for India: Towards a Green Leontief Paradox?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 36(4), pages 427-449, April.
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  13. Sarbajit Chaudhuri, 2001. "Foreign Capital Inflow, Technology Transfer, and National Income," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 40(1), pages 49-56.
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  15. Luken, Ralph & Van Rompaey, Frank & Zigová, Katari­na, 2008. "The determinants of EST adoption by manufacturing plants in developing countries," Ecological Economics, Elsevier, Elsevier, vol. 66(1), pages 141-152, May.
  16. Sarbajit Chaudhuri, 2005. "Foreign Capital Inflow, Non-Traded Intermediary, Urban Unemployment And Welfare In A Small Open Economy: A Theoretical Analysis," International Trade, EconWPA 0511008, EconWPA.
  17. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
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  19. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2006. "Pollution and Informal Sector: A Theoretical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 21, pages 363-378.
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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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