Investment inflows and sustainable development in a natural resource-dependent economy
Paolo Russu () and
Elisa Ticci ()
Department of Economics University of Siena from Department of Economics, University of Siena
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 population
Keywords: foreign direct investments; environmental negative externalities; sustainable development (search for similar items in EconPapers)
JEL-codes: F21 F43 D62 O11 O13 O15 O41 Q20 (search for similar items in EconPapers)
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Working Paper: Investement inflows and sustainable development in a natural resource-dependent economy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:670
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