The impacts of environmental pollution and brain drain on income inequality

This paper establishes a two-sector general equilibrium model of a small open economy to examine the impact of environmental pollution on income inequality via brain drain. The results of the equilibrium modelling show that environmental pollution in the source country can widen the income gap between skilled and unskilled workers and that brain drain caused by environmental pollution will amplify this effect; furthermore, improving the environmental quality in the recipient country will widen the skilled-unskilled income gap in the source country. Our empirical results show that deteriorating the environmental quality in the source country increases income inequality and that brain drain caused by environmental quality will amplify the effect. Our sample is divided into four sub-samples: stage of national development, level of national income, status of environmental pollution and situation of brain drain. We find that environmental pollution has different effects on income inequality via brain drain in these sub-samples. Comparing the heterogeneous components of environmental quality, we find that brain drain caused by diminished ecosystem vitality and by air quality affecting human health will widen income inequality but that other factors related to environmental quality have no significant impacts on the effect of brain drain on income inequality. The results of a robustness test support these conclusions. •Establishing a two-sector general equilibrium model of small open economy•Examining the effect of pollution on income inequality via brain drain•Brain drain caused by ecosystem vitality will widen income gap•Brain drain caused by air quality affecting human health will widen income gap