Abstract
The relationship between trade and environment is a complex and highly debated issue, and the inclusion of IT industry makes this relationship even more complex in nature. Capital-exporting countries are typically well endowed with IT-type capital as well as with non-IT-type capital. Since capital-intensive goods (other than IT Sector) are often also pollution-intensive, factor endowment theories of international trade predict that capital-exporting countries specialize in polluting goods. Thus, the materialization of the pollution haven hypothesis (PHH) is in direct conflict with the factor endowment hypothesis (FEH). The present chapter has tried to solve this debate and by doing so also supports the arguments of PHH over FEH with the help of general equilibrium trade model. In this chapter, we have shown that trade liberalization in the form of non-IT-type capital inflow from Capital-exporting nation (the North) to Capital-importing nation (the South), augmented with environmental restrictions claims the rise of dirty industry in South at the cost of environment-friendly IT industry. However, the same trade regime claims the fall of dirty industry in the North, along with the benefit of expanded IT industry. Interestingly, this chapter also shows that international flow of IT-type capital can lead to an expansion of IT-based industries simultaneously in both capital-exporting and capital-importing nations and also raises the arguments in favour of outsourcing.
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Notes
- 1.
If we consider the incidence of India, we find that the total revenue generated by the IT and business process management industry in India in the year 2013–14, a total of 106.3 billion US dollars of revenue was created by the Indian IT industry, due to the huge response of outsourcing from international companies.
- 2.
BPO and ITES included the followings: customer Interaction Services, Business Process Management, Back Office Operations, Accounting Services, Insurance Claims Processing, Medical Transcription, Legal Databases and Services, Digital Content, Online Education, Data Management and Data Analytics, Data Digitization or GIS, HR Services, Web Site Services, etc.
- 3.
Here, we take one representative from each group, i.e. from South and North. We further assume North representative as the Foreign country and Southern representative as the domestic economy.
- 4.
The following notations are used in this model: \(X_{i}\) = product produced by the ith sector, i = X, Y, Z; \(P_{X} *\) = world price of commodity X; \(P_{X}\) = domestic price of commodity X, we assume \(P_{X}\) = \(P_{X} *\); \(P_{Y} *\) = world price of good Y; \(P_{Y}\) = domestic price of commodity Y, we assume \(P_{Y}\) = \(P_{Y} *\); \(P_{Z}\) = domestic price of good Z; \(P_{Z}^{*}\) = world price of good Z, we assume \(P_{Z} = P_{Z}^{*}\); L = fixed number of workers in the economy; \(N_{\text{D}}\) = domestic IT-type capital stock of the economy; \(N_{{\text{F}}}\) = foreign IT-type capital stock of the economy; N = economy’s aggregate IT-type capital stock (\(N = N_{{\text{D}}} + N_{{\text{F}}}\)); \(K_{{\text{D}}}\) = domestic non-IT-type capital stock of the economy; \(K_{{\text{F}}}\) = foreign non-IT-type capital stock of the economy; K = economy’s aggregate non-IT-type capital stock(\(K = K_{{\text{D}}} + K_{{\text{F}}}\)); \(a_{ji}\) = quantity of the jth factor for producing one unit of output in the ith sector, j = L, K, N and i = X, Y, Z; \(\theta_{ji}\) = distributive share of the jth input in the ith sector; \(\lambda_{ji}\) = proportion of the jth factor used in the production of the ith sector; W = competitive wage rate; r = rate of return to non-IT-type capital; R = rate of return to IT-type capital; ^ = proportional change.
- 5.
To understand the theoretical notations, follow Footnote no. 4. The following equations with * mark illustrate production structures at the North.
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Chatterjee, T. (2020). IT Industry, Environmental Regulations and International Trade-A Two-Sided General Equilibrium Approach. In: Sikdar, S., Das, R.C., Bhattacharyya, R. (eds) Role of IT- ITES in Economic Development of Asia. Springer, Singapore. https://doi.org/10.1007/978-981-15-4206-0_12
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