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The dynamics of foreign direct investments in land and pollution accumulation

Author

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  • Simone Borghesi

    (University of Siena, Italy)

  • Giorgia Giovannetti

    (University of Florence, Italy)

  • Gianluca Iannucci

    (University of Florence, Italy)

  • Paolo Russu

    (University of Sassari, Italy)

Abstract

Following the recent increase of foreign direct investments in land, this paper studies their possible effects on the development of a local economy. To this aim, we use a two-sector model (external and local) with heterogeneous agents: external investors and local land owners. We assume that both sectors are negatively affected by pollution, but only the external sector is polluting. The local government can tax the external sector’s production activities to finance environmental defensive expenditures. We first examine the equilibria that emerge in the model from the dynamics of pollution and physical capital, and then investigate the conditions for the coexistence of the two sectors and the impact of the external sector on the welfare of the local population. Using numerical simulations, we show that a welfare-improving growth path may occur only if the pollution tax is high enough and the impact of the external sector on pollution is low enough. Otherwise, a welfare-reducing growth path may occur, with foreign direct investments decreasing the revenues of local land owners.

Suggested Citation

  • Simone Borghesi & Giorgia Giovannetti & Gianluca Iannucci & Paolo Russu, 2016. "The dynamics of foreign direct investments in land and pollution accumulation," SEEDS Working Papers 1116, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Nov 2016.
    • Handle: RePEc:srt:wpaper:1116
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    3. Elettra Agliardi & Anastasios Xepapadeas, 2019. "Introduction: Special Issue on the Economics of Climate Change and Sustainability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 1-4, January.

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    More about this item

    Keywords

    Two-sector model; land grabbing; environmental negative externalities; pollution;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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