The impact of environmental protection on urbanization

Abstract This paper develops a small open Harris‐Todaro model with intersectoral capital mobility and the negative externality of pollution to analyze the effects of the pollution tax on urbanization and GDP . We demonstrate that an increase in the pollution tax leads to a decrease in the level of urbanization. Furthermore, we show that if the ratio of the production value of manufactured goods to GDP is smaller than the ratio of the production value of agricultural goods to GDP , then a rise in the pollution tax results in an increase in GDP .