Working paper N. 725 Gennaio 2016
Angelo Antoci
Dipartimento di Scienze Economiche e Aziendali, Università di Sassari
Marcello Galeotti
Dipartimento di Statistica, Informatica, Applicazioni ’G. Parenti’, Università di Firenze
Serena Sordi
Dipartimento di Economia Politica e Statistica, Università di Siena
Abstract
This paper analyzes the dynamics of a small open economy characterized by two sectors (a farming sector and an industrial sector), heterogeneous agents (workers and entrepreneurs) and free inter-sectoral labor mobility. Labor productivity in the farming sector is negatively affected by environmental pollution generated by both sectors. Labor productivity in the industrial sector is positively affected by physical capital accumulated by entrepreneurs. We show that, as in the seminal contribution by Matsuyama (1992), low productivity of labor in the farming sector can be an engine of the industrialization process. However, in contrast with Matsuyama’s results, our analysis shows that the accumulation of pollution may fuel a self-enforcing process such that the expansion of the industrial sector generates a decrease in workers’ revenues.
Keywords
Two-sector model; structural change; negative externalities; pollution; self-protection behavior
Jel Codes
D62, E32, C61, B41, E12
