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

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  • 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
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    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

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