The incidence of environmental regulation in a developing economy with sector-specific unemployment: a note

This note investigates the effects of environmental regulation in a general-equilibrium model incorporating capital mobility and sector-specific unemployment. The government sets a maximum allowable level of environmental use in advance. This environmental use beneficially affects the production, but causes negative externality which is restricted by a regulating function. It specifically examines the effects of environmental regulation on output levels, factor returns, urban unemployment ratio, the incidence issue and the national income. Our analysis reveals that the trade-off relationship between environment and economic development is likely to exist.