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Transboundary Capital and Pollution Flows and the Emergence of Regional Inequalities

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  • Levin, Simon
  • Xepapadeas, Anastasios

Abstract

We seek to explain the emergence of spatial heterogeneity regarding development and pollution on the basis of interactions associated with the movement of capital and polluting activities from one economy to another. We use a simple dynamical model describing capital accumulation along the lines of a fixed-savings-ratio Solow-type model capable of producing endogenous growth and convergence behavior, and pollution accumulation in each country with pollution diffusion between countries or regions. The basic mechanism underlying the movements of capital across space is the quest for locations where the marginal productivity of capital is relatively higher than the productivity at the location of origin. The notion that capital moves to locations of relatively higher productivity but not necessarily from locations of high concentration to locations of low concentration, does not face difficulties associated with the Lucas paradox. We show that, for a wide range of capital and pollution rates of flow, spatial heterogeneity emerges even between two economies with identical fundamental structures. These results can be interpreted as suggesting that the neoclassical convergence hypothesis might not hold under differential rates of flow of capital and polluting activities among countries of the same fundamental structure.

Suggested Citation

  • Levin, Simon & Xepapadeas, Anastasios, 2015. "Transboundary Capital and Pollution Flows and the Emergence of Regional Inequalities," Climate Change and Sustainable Development 206869, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemcl:206869
    DOI: 10.22004/ag.econ.206869
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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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