Transboundary Pollution Flows, Capital Mobility and the Emergence of Regional Inequalities

Abstract

"The observed relationship between economic development and environmental pollution implies a non-homogeneous spatial pattern between these two characteristics. We consider two similar interacting economies with adverse effects from pollution on capital accumulation. We show that differential flow rates of capital and polluting activities between the two economies can generate spatial patterns which could lead to a spatially heterogeneous steady state, both with respect to capital accumulation and pollution accumulation. Thus there is divergence and not convergence and regional inequalities tend to persist. Policies aiming at balancing the flows of capital and polluting activities might work towards reducing regional inequalities."