Abstract
We investigate how industrial capital accumulation may affect environment, urban unemployment, gross domestic product (GDP) and welfare in a small open Harris-Todaro model with polluting urban manufacturing. Urban capital accumulation, which increases pollution, reduces the level of urban unemployment and raises GDP if and only if the degree of urbanization is high and rural technology exhibits strong diminishing returns to labor. Immiserizing growth in terms of welfare happens whenever GDP decreases. A developing country that has the two features above is likely to promote industrial capital accumulation even though it deteriorates global environmental quality.
