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On foreign aid, pollution and abatement

Published online by Cambridge University Press:  18 February 2015

Reza Oladi  and
Hamid Beladi
Reza Oladi
Affiliation:
Department of Applied Economics, Utah State University, Logan, UT, USA. E-mail: [email protected].
Hamid Beladi
Affiliation:
Department of Economics, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249–0633, USA. Tel: 210–458-7038. Fax: 210–458-7040. E-mail: [email protected].
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Abstract

This paper provides a Ricardian general equilibrium model to study the effect of foreign aid aimed at abating pollution in a small southern recipient economy. The government faces a dynamic problem as it chooses the emission level and abates pollution. The stock of pollution damages consumers and its law of motion is influenced by emission level and the stock of pollution as well as the level of abatement. We show that such type of aid increases emissions, but its effect on pollution stock is ambiguous in the absence of trade. With trade, aid reduces both pollution and emissions given that the recipient country has comparative advantage in the pollution-intensive good. Moreover, such type of aid can be immiserizing with or without trade.

Type
Research Article
Information
Environment and Development Economics , Volume 20 , Issue 6 , December 2015 , pp. 797 - 812
Copyright
Copyright © Cambridge University Press 2015 

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