Open-access Renewable Resources and Urban Unemployment: Dual Institutional Failures in a Small Open Economy

Ichiroh Daitoh and Nori Tarui

No 2016-009, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: This paper investigates when poverty reduction and environmental resource preservation can be compatible in developing economies with two prominent institutional failures: wage rigidity in urban labor markets and open access to rural natural resources. We develop a small open dualistic economy model with these institutional features, and investigate the effects of an export tax on the resource good on urban unemployment and overexploitation of the rural resource. At the steady state, the first-best policy calls for an urban wage subsidy while rural labor should be subsidized at a lower rate, or be taxed. A rural tax constitutes the first-best policy when the domestic price of urban manufactured good is sufficiently high. Thus the well-known first-best policy prescription by Bhagwati and Srinivasan (1974) does not apply to developing countries when the world price of the resource good is low under free trade and/or an import tariff on the manufactured good is high. Unlike what the literature indicates, an increase in the export tax rate generally reduces the rate of urban unemployment, thereby improving welfare. However, the level of urban unemployment is more likely to increase if the initial rate of export tax is lower. A small export tax always improves welfare by mitigating the two institutional failures.

Keywords: open access; renewable resource; urban unemployment; export tax on the resource good; Harris-Todaro model (search for similar items in EconPapers)
JEL-codes: F18 O13 Q27 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-03-30
New Economics Papers: this item is included in nep-agr, nep-env and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ies.keio.ac.jp/upload/pdf/en/DP2016-009.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:2016-009

Access Statistics for this paper

More papers in Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University Contact information at EDIRC.
Bibliographic data for series maintained by Institute for Economics Studies, Keio University ().