Structural Change, Environment and Well-being: Interactions Between Production and Consumption Choices of the Rich and the Poor in Developing Countries

Vulnerability to scarcity or to reduction of natural capital depends on defensive substitution possibilities that, in turn, are affected by the availability of other productive factors. However, in several developing countries asset distribution tends to be highly skewed. Taking into ac- count these elements, this paper argues that environmental degradation may represent a push factor of economic development in an economy polarized into two main classes (the Rich and the Poor) and characterized by the following stylized facts: a) the main income source of the rural poor is self-employment in traditional activities highly depending on natural resources; b) labor remuneration in rural sector represents the basic opportunity cost for (unskilled) labor in the economy. Thus, given that environmental degradation reduces labor productivity of the rural poor, it may depress wages; c) production of the modern sector managed by the rich is less affected by depletion of natural resources because they can adopt defensive strategies that the poor cannot. They are able to defend themselves by partially substituting natural resources with physical capital accumulation and wage labor employment. We will show that, in this context, environmental depletion may benefit the modern sector through an increase in low cost labor supply and, in turn, it may stimulate economic transition. However the structural change is likely to result in an increase in inequality.Production, Consumption Choices, Welfare

Distributive impact of structural change: does environmental degradation matter?

Vulnerability to reduction of natural capital depends on defensive substitution possibilities that, in turn, are affected by the availability of other productive factors. However in several developing countries asset distribution tends to be highly skewed. Taking into account these elements, this paper proposes a model considering an economy polarized into two classes (the rich and the poor) and characterized by the following stylized facts: income and productivity of the rural poor is highly dependent on natural resources; labour remuneration in rural sector represents the opportunity cost for wage labour; the rich can partially substitute natural capital with physical capital accumulation and wage labour employment. In this context, agents differ for feed back mechanisms and interactions between their choices of production and environmental dynamics. Moreover environmental depletion may trigger economic transition, but the structural change is likely to result regressive.structural change, environmental externalities, economic development, poverty alleviation.

Local Communities in front of Big External Investors: An Opportunity or a Risk?

In the current age of trade and financial openness, local economies in developing countries are becoming increasingly exposed to external investments. The objective of the proposed two-sector model with environmental externalities is to provide an insight into the interaction between external investors and local communities with a focus upon the different strategies and income sources available to each category. In this context, analysis suggests that environmental regulations and incentives offered in order to attract external capital investment (whether foreign or national) may have an un-uniform impact on the two typologies of actors.Foreign Direct Investments, Environmental Negative Externalities, Structural Changes, Poverty Alleviation

Structural change, economic growth and environmental dynamics with heterogeneous agents

This paper presents a model which takes into account two main factors that have been partially neglected by the economic development literature: the environmental externalities of human activities and agents' heterogeneity in terms of asset endowment and, consequently, in terms of income source and vulnerability to depletion of natural resources. This approach permits to shed light on agents' differences in feed-back mechanisms and interactions between their choices and environmental dynamics and allow us to propose a taxonomy of structural changes on the basis of distributive, environmental and economic impact. In such context, we identify under which conditions each structural change can occur. In par ticular, we identify new requirements for prompting positive structural changes, i.e. a movement of labour to capitalistic activities associated with poverty reduction and the alleviation of environmental pressures.Structural change; environmental externalities; eco- nomic development; poverty alleviation

Interactions between financial and environmental networks in OECD countries

We analyse a multiplex of networks between OECD countries during the decade 2002-2010, which consists of five financial layers, given by foreign direct investment, equity securities, short-term, long-term and total debt securities, and five environmental layers, given by emissions of N O x, P M 10 SO 2, CO 2 equivalent and the water footprint associated with international trade. We present a new measure of cross-layer correlations between flows in different layers based on reciprocity. For the assessment of results, we implement a null model for this measure based on the exponential random graph theory. We find that short-term financial flows are more correlated with environmental flows than long-term investments. Moreover, the correlations between reverse financial and environmental flows (i.e. flows of different layers going in opposite directions) are generally stronger than correlations between synergic flows (flows going in the same direction). This suggests a trade-off between financial and environmental layers, where, more financialised countries display higher correlations between outgoing financial flows and incoming environmental flows from lower financialised countries, which could have important policy implications. Five countries are identified as hubs in this finance-environment multiplex: The United States, France, Germany, Belgium-Luxembourg and the United Kingdom.Comment: Supplementary Information provide

Rural poor economies and foreign investors: an opportunity or a risk?

In the current age of commercial and financial openness, remote and poor local economies are becoming increasingly exposed to inflows of external capital. The new investors - enjoying lower credit constraints than local dwellers - might play a propulsive role in local development. At the same time, inflows of external capital can have negative impacts on local natural resource-dependent activities. We analyze a two-sector model where both sectors damage the environment, but only that of domestic producers relies on natural resources. We assess under which conditions the coexistence of the two sectors is compatible with sustainability, defined as convergence to a stationary state characterized by a positive stock of the natural resource. Moreover, we find that capital inflows can be stimulated by an increase in the pollution intensity of incoming activities, but also in the pollution intensity of the domestic sector; in both cases, capital inflows generate environmental degradation and a decrease in welfare for the local population. Finally, we show that a reduction in the cost of capital for external investors and the consequent capital inflows have the effect to increase wages, local investments and welfare of the local populations only if the environmental impact of the external sector is relatively low with respect to that of local activities. Otherwise, an unexpected scenario characterized by a reduction in domestic capital accumulation and the impoverishment of local agents can occur

Sub-Saharan Africa in global trends of investment in renewable energy. Drivers and the challenge of the water-energy-land nexus

This paper explores recent patterns of domestic and foreign investments in renewable energies. It describes drivers and features of investment in renewable energies, with special attention to biofuels, highlighting that these forms of energy are likely to contribute to competition for land and water as the latter become increasingly scarce

Investment inflows and sustainable development in a natural resource-dependent economy

In the current age of trade and financial openness, remote and poor local economies are becoming increasingly exposed to inflows of external capital. External investors - enjoying lower credit constraints than local dwellers - might play a propulsive role for local development. At the same time, inflows of external capital can produce environmental externalities which negatively affect labor productivity in local natural resource-dependent activities. In our paper, we consider a small open economy with three factors of production - labor, a renewable natural resource and physical capital- and two sectors - the “industrial sector” and the “local sector”. Physical capital is specific to the industrial sector whereas the natural resource is specific to the local sector. External investors participate in the industrial sector as long as the return on capital invested is higher than in other economies. The activity of the industrial sector generates a negative impact on the environmental resource. In this context, we assess under which conditions the coexistence of the two sectors gives rise to an increase in the welfare of the local populatio

Structural Change, Environment and Well-being: Interactions Between Production and Consumption Choices of the Rich and the Poor in Developing Countries

Vulnerability to scarcity or to reduction of natural capital depends on defensive substitution possibilities that, in turn, are affected by the availability of other productive factors. However, in several developing countries asset distribution tends to be highly skewed. Taking into ac- count these elements, this paper argues that environmental degradation may represent a push factor of economic development in an economy polarized into two main classes (the Rich and the Poor) and characterized by the following stylized facts: a) the main income source of the rural poor is self-employment in traditional activities highly depending on natural resources; b) labor remuneration in rural sector represents the basic opportunity cost for (unskilled) labor in the economy. Thus, given that environmental degradation reduces labor productivity of the rural poor, it may depress wages; c) production of the modern sector managed by the rich is less affected by depletion of natural resources because they can adopt defensive strategies that the poor cannot. They are able to defend themselves by partially substituting natural resources with physical capital accumulation and wage labor employment. We will show that, in this context, environmental depletion may benefit the modern sector through an increase in low cost labor supply and, in turn, it may stimulate economic transition. However the structural change is likely to result in an increase in inequality