Question

How can greater capital mobility affect countries’ environmental policies? Will businesses necessarily be pleased with the consequences of capital mobility on countries’ environmental policies?

Answer 1

Ans: The growth in capita mobility is not necessarily enhancing and efficient. Capital mobility has a relationship with environmental degradation. Greater capital mobility has two kinds of effects on the environment which follow different types of environmental policies. Initially, industrial and automobile pollution causes pollution, and global warming and capital mobility contribute rises the production which increases the rate of pollution. The environmental policies that address this concern will be imposing tax and quota on the commodities that are producing pollution commodities. Along subsidies can be provided to firms that are using environment-friendly cleaner technology. Secondly, as a result of capital mobility, the income of the people is increasing which can be used by them for consuming polluting automobiles. The government imposes taxes on commodities that are more environmentally harmful. It is not necessary that the businesses will be pleased by the environmental policies, as they have imposed an additional expense or cost in the production of the polluting commodities. The cost of production in the home country increases as a result of environmental policies. Thus, when environmentally friendly countries impose a tax on pollution to regulate the amount of pollution emitted, then the polluting firms can move to a country that has more relaxed pollution control policies. This increases the net pollution, thus putting the global environment at risk. A well-developed infrastructure, improved capital mobility, flexible system, reliable transportation are important factors taken into consideration for a healthy and functioning economy without sacrificing the environmental quality.