Rural Environmental Degradation, Growth, and Income Distribution in a Structuralist Two-Sector Model

The model presented in this paper distinguishes an industrial and an agricul-tural sector within a developing economy. Environmental degradation results from the overexploitation of a renewable resource due to a common pool exter-nality, which causes agricultural productivity to decline. The model considers a dierentiated peasantry where land ownership and savings behaviour dier across income classes. The analysis reveals that environmental degradation can reduce growth in the short run but increases growth (measured by the stock of industrial capital per capita) in the long run. Redistribution in favour of the poor reinforces the long-run increase but generates ambiguous short-term outcomes. These results suggest that environmental and redistributive policies involve complex trade-os between both intergenerational and intragenerational equity