Informal Economy and Environmental Sustainability: An Optimal-Growth Theoretic Analysis

Abstract

This chapter seeks to develop a one-commodity two-sector model, much in line with optimal growth theory tradition owing to Ramsey (1928), Cass (1965), and Koopmans (1965) to overhaul into the dynamic interaction between the formal sector manufacturing activities and environmental quality, assuming an informal sector producing intermediate goods for the formal sector given and thus underline the potential challenges to the conservation of nature in less developed countries. It is thus presented herein, that the in presence of one-sided environmental regulation on the formal sector in exception to the informal sector, economy's long-run equilibrium in terms of consumption, informal sector employment, and capital stock accumulation in the formal sector will dynamically unstable, in what is fundamentally attributable to the switching of environmentally sensitive components of production to informal sector from formal sector, as matter of such partial environmental enforcement.

Citation

Bhattacharjee, M. (2024), "Informal Economy and Environmental Sustainability: An Optimal-Growth Theoretic Analysis", Pal, M.K. and Das, P. (Ed.) Informal Manufacturing and Environmental Sustainability, Emerald Publishing Limited, Leeds, pp. 45-56. https://doi.org/10.1108/978-1-83549-998-620241004