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

Jiancai Pi and Pengqing Zhang

International Review of Economics & Finance, 2017, vol. 48, issue C, 280-288

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.

Keywords: Foreign capital; Pollution control; Wage inequality; General equilibrium approach (search for similar items in EconPapers)
JEL-codes: F21 J31 Q58 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:48:y:2017:i:c:p:280-288

DOI: 10.1016/j.iref.2016.11.007

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