Chapter 6: Unconditional Cash Transfers, Environmental Degradation and Sustainable Livelihood in an Informal Economy: A Trade-Theoretic Perspective

Governments of the developing countries across the globe have been serious in designing social protection policies to address vulnerabilities faced by workers in the informal sector. Such a form of public intervention is expected to preserve livelihoods of these workers while mitigating the negative impacts of environmental degradation which exposes them to risks on which they do not have any control. This chapter develops a tractable theoretical framework to analyze the efficacy of Unconditional Cash Transfer (UCT), a popular form of social protection, in addressing both the issues affecting the well-being of the informal sector workers. A simple three sector trade theoretic general equilibrium structure is constructed with an informal manufacturing sector producing a pollution intensive commodity. UCT given to the informal sector workers is modelled to improve the efficiency of these workers which again is negatively related to the output of the informal manufacturing sector. In such a setup, contrary to the conventional wisdom, UCT can depress livelihood opportunities while raising pollution at the same time since direct effect of the transfer on efficiency of the workers will dominate over the indirect effect generated through exposure to pollution. A negative impact of UCT on livelihood of workers can be avoided using an accommodative investment policy, however, it will call for more pollution.