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A Dynamic Analysis of the Income-Pollution Relationship in a Two-country Setting

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Abstract

This research explores the presence of the income-pollution relationship in a dynamic two- country setting. We argue that the initial conditions of an economy, as described by its initial stock of physical capital, its total factor productivity, and the degree of environmental aware- ness, are critical determinants of the income-pollution paths. More importantly, these initial conditions have a more pronounced e¤ect in a world where economies interact with one another and transboundary and global pollutants are a¤ecting more than one country. We show that, in the presence of pollution externalities between two countries, the income-pollution paths these countries follow depend on the stage of development of each country, on their relative and absolute productivities, on the degree of environmental awareness and on the transbound- ary nature of the pollutants. In a two-country setting with pollution externalities even more complex patterns may arise compared to single country models, thereby con…rming the non- linear e¤ect of growth on environmental outcomes. It is shown that even small asymmetries span income-pollution relationships that are signi…cantly di¤erent than the prescribed inverted U-shaped patterns.

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  • Eleftherios Filippiadis & Anastasia Litina, 2021. "A Dynamic Analysis of the Income-Pollution Relationship in a Two-country Setting," Discussion Paper Series 2021_01, Department of Economics, University of Macedonia, revised Jan 2021.
  • Handle: RePEc:mcd:mcddps:2021_01
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    More about this item

    Keywords

    Environmental Kuznets Curve; Environmental poverty trap; TFP asymmetry; Transboundary pollutants.;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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