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

  • Yusuf, Arief Anshory

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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1735.

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Date of creation: 10 Feb 2007
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Handle: RePEc:pra:mprapa:1735
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  1. 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.
  2. Copeland,B.R. & Scott Taylor,M., 2003. "Trade, growth and the environment," Working papers 10, Wisconsin Madison - Social Systems.
  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. Raghbendra Jha & John Whalley, 2001. "The Environmental Regime in Developing Countries," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 217-250 National Bureau of Economic Research, Inc.
  5. 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.
  6. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  7. Dean, Judith M & Gangopadhyay, Shubhashis, 1997. "Export Bans, Environmental Protection, and Unemployment," Review of Development Economics, Wiley Blackwell, vol. 1(3), pages 324-36, October.
  8. 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.
  9. 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.
  10. Magee, Stephen P, 1973. "Factor Market Distortions, Production, and Trade: A Survey," Oxford Economic Papers, Oxford University Press, vol. 25(1), pages 1-43, March.
  11. 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.
  12. 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.
  13. Chao, Chi-Chur & Kerkvliet, Joe R & Yu, Eden S H, 2000. "Environmental Preservation, Sectoral Unemployment, and Trade in Resources," Review of Development Economics, Wiley Blackwell, vol. 4(1), pages 39-50, February.
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