Small-scale industry, environmental regulation, and poverty: The case of Brazil

Governments and international development agencies have intensified efforts to pro-mote small-scale enterprises as an engine of propoor growth. In Brazil, however, small-scale industries may also be responsible for the bulk of air pollution emissions. Although employees of polluting small-scale industries in Brazil are not disproportio-nately poor, simulations suggest that stringent environmental regulation resulting in widespread closures of pollution-intensive small-scale industries would result in a nonnegligible increase in poverty among employees of these firms. The results suggest that the enthusiasm for small-scale enterprises needs to be tempered by awareness of the potential environmental costs imposed by this sector. Small-scale enterprises have generated a surge of interest among policymakers and development agencies in recent years. The World Bank and the Inter-national Finance Corporation (IFC) have been particularly active in promoting small-scale enterprises, setting up a separate department for them in 2000 and allotting $1.5 billion toward their development in 2002. This emphasis is not unwarranted. Small-scale enterprises are the dominan