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Who Pay for the Cleaner Air? Distributional Impact of Environmental Policy in a Dualistic Economy

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Author Info
Arief Anshory Yusuf () (Department of Economics, Padjadjaran University)

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Abstract

Using a technology where pollution is regarded as by-product of industry's activity and applied in a simple setup of Heckscher-Ohlin-Copeland-Taylor model, this paper analyses the possible distributional impacts of stricter environmental policy in a developing country characterized by the presence of labor-intensive informal sector which may not be a subject to the environmental regulation, and capital intensive formal sector which may face minimum wage policy. The comparative static analysis illustrates that stricter environmental regulation if enforced uniformly accross industries in undistorted labor market, hurts both labor and capital owner, leaving income ditribution unchanged. On the contrary, when economy is dualistic, income distribution may change due to labor reallocation. When the stricter regulation can only be enforced in formal sector, capital owner will be worse-off while labor are better-off. If initially capital reward is higher, the environmental policy will improve income distribution in favor of labor. The change in income distribution is greater when economy is dualistic.

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File URL: http://www.equitablepolicy.org/wpaper/200502.pdf
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Publisher Info
Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200502.

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Length: 22 pages
Date of creation: Feb 2005
Date of revision: Feb 2005
Handle: RePEc:unp:wpaper:200502

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Related research
Keywords: Environmental Policy; Dualistic Economy; Distribution;

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Find related papers by JEL classification:
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects

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  1. Imam, M Hasan & Whalley, John, 1985. "Incidence Analysis of a Sector-specific Minimum Wage in a Two-Sector Harris-Todaro Model," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 207-24, February. [Downloadable!] (restricted)
  2. Kar, Saibal & Marjit, Sugata, 2001. "Informal sector in general equilibrium: welfare effects of trade policy reforms," International Review of Economics & Finance, Elsevier, vol. 10(3), pages 289-300, July. [Downloadable!] (restricted)
  3. Falvey, R. & Tyers, R. & McDougall, R., 1997. "Trade Shocks and the Magnitude of Transmitted Wage Adjustments," Papers 318, Australian National University - Department of Economics.
  4. Neary, J Peter, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 551-70, August. [Downloadable!] (restricted)
  5. Brian R. Copeland & M. Scott Taylor, 1997. "A Simple Model of Trade, Capital Mobility, and the Environment," NBER Working Papers 5898, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Raghbendra Jha & John Whalley, 1999. "The Environmental Regime in Developing Countries," NBER Working Papers 7305, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Harry G. Johnson, 1969. "Minimum Wage Laws: A General Equilibrium Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 2(4), pages 599-604, November. [Downloadable!] (restricted)
  8. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Bengt Kriström, 2003. "Framework for Assessing the Distribution of Financial Effects of Environmental Policies," Working Paper Series 03/337, Swedish University of Agricultural Sciences, Department of Forest Economics.
  10. repec:att:wimass:1920310 is not listed on IDEAS
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