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Rural poor economies and foreign investors: an opportunity or a risk?

Antoci, Angelo and Russu, Paolo and Ticci, Elisa (2014) Rural poor economies and foreign investors: an opportunity or a risk? PLoS One, Vol. 9 (12), e114703. eISSN 1932-6203. Article.

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DOI: 10.1371/journal.pone.0114703

Abstract

In the current age of commercial and financial openness, remote and poor local economies are becoming increasingly exposed to inflows of external capital. The new investors - enjoying lower credit constraints than local dwellers - might play a propulsive role in local development. At the same time, inflows of external capital can have negative impacts on local natural resource-dependent activities. We analyze a two-sector model where both sectors damage the environment, but only that of domestic producers relies on natural resources. We assess under which conditions the coexistence of the two sectors is compatible with sustainability, defined as convergence to a stationary state characterized by a positive stock of the natural resource. Moreover, we find that capital inflows can be stimulated by an increase in the pollution intensity of incoming activities, but also in the pollution intensity of the domestic sector; in both cases, capital inflows generate environmental degradation and a decrease in welfare for the local population. Finally, we show that a reduction in the cost of capital for external investors and the consequent capital inflows have the effect to increase wages, local investments and welfare of the local populations only if the environmental impact of the external sector is relatively low with respect to that of local activities. Otherwise, an unexpected scenario characterized by a reduction in domestic capital accumulation and the impoverishment of local agents can occur.

Item Type:Article
ID Code:10556
Status:Published
Refereed:Yes
Uncontrolled Keywords:Poor local economies, external capital, new investors, local development, negative impacts
Subjects:Area 13 - Scienze economiche e statistiche > SECS-S/06 Metodi matematici dell'economia e delle scienze attuariali e finanziarie
Divisions:001 Università di Sassari > 01-a Nuovi Dipartimenti dal 2012 > Scienze economiche e aziendali
Publisher:Public Library of Science
eISSN:1932-6203
Copyright Holders: © 2014 Antoci et al.
Deposited On:23 Dec 2014 09:42

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