Impact of Environmental Regulation in a Small Open Economy

Abstract

The paper attempts to examine the impact of change in government regulation about environmental standard on the level of environmental pollution and on the level of social welfare as well as real national income in the developing economy where the manufacturing sector is unable to maintain their pollution level upto maximum permissible level of pollution imposed by the environmental authority. A fine for violation of environmental standard is imposed on the producer of the manufacturing sector. The study also shows that under some reasonable conditions there arises a favourable impact on the level of overall environmental pollution and on the level of social welfare as well as real national income due to relatively stringent government regulation about environmental standard