The Dynamics of Foreign Direct Investments in Land and Pollution Accumulation
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 revenues of the local population. Using numerical simulations, we show that a revenue-increasing path may occur only if the pollution tax is high enough and the impact of the external sector on pollution is low enough. Otherwise, foreign direct investments may end up impoverishing the local population.
KeywordsForeign direct investments Land grabbing Two-sector model Environmental negative externalities Pollution taxation
JEL ClassificationD62 F21 O15 O41 Q50
The authors would like to thank two anonymous referees and seminar participants at the 5th IAERE Annual Conference (Italian Association of Environmental and Resource Economists; Rome: February 16–17, 2017), at International Workshop on the Economics of Climate Change and Sustainability (Rimini: April 28–29, 2017) and at the 23rd EAERE Annual Conference (European Association of Environmental and Resource Economists; Athens: June 28–July 1, 2017) for useful comments and suggestions on a preliminary version of this work. Special thanks to Angelo Antoci for fruitful discussions that helped improve the paper. The usual disclaimer applies.
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