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May  2017, 22(3): 913-922. doi: 10.3934/dcdsb.2017046

Transboundary capital and pollution flows and the emergence of regional inequalities

1. 

Department of Ecology and Evolutionary Biology, Princeton University, Princeton, NJ 08540, USA

2. 

Athens University of Economics and Business, Department of International and European Economic Studies, 76 Patission Street, 104 34 Athens, Greece

We are pleased to dedicate this to Stephen Cantrell on the occasion of his 60th birthday

Received  June 2015 Revised  August 2015 Published  December 2016

Fund Project: Beijer Institute of Ecological Economics Fellow, and RFF University Fellow. Levin acknowledges that funding was provided by the National Science Foundation grants GEO-1211972 and OCE-1426746, and by the Nordforsk-funded project Green Growth Based on Marine Resources: Ecological and Socio-Economic Constraints (GreenMAR)..
Beijer Institute of Ecological Economics Fellow. Xepapadeas acknowledges that his research has been co-financed by the European Social Fund –and Greek national funds through the Research Funding Program: Excellence(ARISTEIA) –AUEB "Spatiotemporal-Dynamics in Economics.".

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.

Citation: Simon Levin, Anastasios Xepapadeas. Transboundary capital and pollution flows and the emergence of regional inequalities. Discrete and Continuous Dynamical Systems - B, 2017, 22 (3) : 913-922. doi: 10.3934/dcdsb.2017046
References:
[1]

D. Acemoglu, Introduction to Modern Economic Growth MIT press, 2009.

[2]

R. ArnottO. Hochman and G. C. Rausser, Pollution and land use: optimum and decentralization, Journal of Urban Economics, 64 (2008), 390-407. 

[3]

R. J. Barro and X. Sala-i Martin, Economic Growth MIT Press, Cambridge, Massachusetts, 2004.

[4]

R. Becker, Intergenerational equity: The capital-environment trade-off, Journal of Environmental Economics and Management, 9 (1982), 165-185. 

[5]

R. BoucekkineC. Camacho and G. Fabbri, Spatial dynamics and convergence: The spatial AK model, Journal of Economic Theory, 148 (2013), 2719-2736. 

[6]

W. A. Brock and M. Scott Taylor, Economic growth and the environment: A review of theory and empirics, Handbook of Economic Growth, 1 (2005), 1749-1821. 

[7]

W. A. Brock and A. Xepapadeas, Pattern formation, spatial externalities and regulation in coupled economic–ecological systems, Journal of Environmental Economics and Management, 59 (2010), 149-164. 

[8]

W. A. BrockA. Xepapadeas and A. N. Yannacopoulos, Optimal agglomerations in dynamic economics, Journal of Mathematical Economics, 53 (2014), 1-15. 

[9]

B. Forster, Optimal capital accumulation in a polluted environment, Southern Economic Journal, 39 (1973), 544-557. 

[10]

R. Gradus and S. Smulders, The trade-off between environmental care and long-term growth -pollution in three prototype growth models, Journal of Economics, 58 (1993), 25-51. 

[11]

J. V. Henderson, Externalities in a spatial context: The case of air pollution, Journal of Public Economics, 7 (1977), 89-110. 

[12]

H. HettigeR. E. B. Lucas and D. Wheeler, The toxic intensity of industrial production: Global patterns, trends, and trade policy', AEA Papers and Proceedings, 82 (1992), 478-481. 

[13]

L. Jones and R. Manuelli, A convex model of equilibrium growth: Theory and policy implications, Journal of Political Economy, 98 (1990), 1008-1038. 

[14]

E. KeelerM. Spence and R. Zeckhauser, The optimal control of pollution, Journal of Economic Theory, 4 (1972), 19-34. 

[15]

C. D. Kolstad, Empirical properties of economic incentives and command-and-control regulations for air pollution control, Land Economics, 62 (1986), 250-268. 

[16]

E. Kyriakopoulou and A. Xepapadeas, Environmental policy, first nature advantage and the emergence of economic clusters, Regional Science and Urban Economics, 43 (2013), 101-116. 

[17]

S. A. Levin, Dispersion and population interactions, American Naturalist, 108 (1974), 207-228. 

[18]

A. Levinson and M. Scott Taylor, Unmasking the pollution haven effect, International Economic Review, 49 (2008), 223-254. 

[19]

R. E. Lucas, Why doesn't capital ‡ow from rich to poor countries?, The American Economic Review, 80 (1990), 92-96. 

[20]

R. E. Lucas, Macroeconomic priorities, The American Economic Review, 93 (2003), 1-14. 

[21]

J. Murray, Mathematical Biology Second Edition, Berlin, Springer, 1993.

[22]

D. T. Quah, Regional convergence clusters across europe, European Economic Review, 40 (1996), 951-958. 

[23]

V. Ramanathan, Atmospheric Brown Clouds: Regional Assessment Report with Focus on Asia United Nations Environment Programme, Nairobi, Kenya, 2008.

[24]

M. D. SmithJ. N. Sanchirico and J. E. Wilen, The economics of spatial-dynamic processes: Applications to renewable resources, Journal of Environmental Economics and Management, 57 (2009), 104-121. 

[25]

R. Solow, A contribution to the theory of economic growth, Quarterly Journal of Economics, 70 (1956), 65-94. 

[26]

A. Turing, The chemical basis of morphogenesis, Philosophical Transactions of the Royal Society of London, 237 (1952), 37-72. 

[27]

J. E. Wilen, Economics of spatial-dynamic processes, American Journal of Agricultural Econonomics, 89 (2007), 1134-1144. 

[28]

A. Xepapadeas, Economic Growth and the Environment, in Handbook of Environmental Economics, Volume 3: Economywide and International Environmental Issues K-G Mäler and J. Vincent (Eds), Elsevier Publishers, 2005.

[29]

A. Xepapadeas and A. Yannacopoulos, Spatial growth with exogenous saving rates, Journal of Mathematical Economics, 67 (2016), 125-137. 

show all references

References:
[1]

D. Acemoglu, Introduction to Modern Economic Growth MIT press, 2009.

[2]

R. ArnottO. Hochman and G. C. Rausser, Pollution and land use: optimum and decentralization, Journal of Urban Economics, 64 (2008), 390-407. 

[3]

R. J. Barro and X. Sala-i Martin, Economic Growth MIT Press, Cambridge, Massachusetts, 2004.

[4]

R. Becker, Intergenerational equity: The capital-environment trade-off, Journal of Environmental Economics and Management, 9 (1982), 165-185. 

[5]

R. BoucekkineC. Camacho and G. Fabbri, Spatial dynamics and convergence: The spatial AK model, Journal of Economic Theory, 148 (2013), 2719-2736. 

[6]

W. A. Brock and M. Scott Taylor, Economic growth and the environment: A review of theory and empirics, Handbook of Economic Growth, 1 (2005), 1749-1821. 

[7]

W. A. Brock and A. Xepapadeas, Pattern formation, spatial externalities and regulation in coupled economic–ecological systems, Journal of Environmental Economics and Management, 59 (2010), 149-164. 

[8]

W. A. BrockA. Xepapadeas and A. N. Yannacopoulos, Optimal agglomerations in dynamic economics, Journal of Mathematical Economics, 53 (2014), 1-15. 

[9]

B. Forster, Optimal capital accumulation in a polluted environment, Southern Economic Journal, 39 (1973), 544-557. 

[10]

R. Gradus and S. Smulders, The trade-off between environmental care and long-term growth -pollution in three prototype growth models, Journal of Economics, 58 (1993), 25-51. 

[11]

J. V. Henderson, Externalities in a spatial context: The case of air pollution, Journal of Public Economics, 7 (1977), 89-110. 

[12]

H. HettigeR. E. B. Lucas and D. Wheeler, The toxic intensity of industrial production: Global patterns, trends, and trade policy', AEA Papers and Proceedings, 82 (1992), 478-481. 

[13]

L. Jones and R. Manuelli, A convex model of equilibrium growth: Theory and policy implications, Journal of Political Economy, 98 (1990), 1008-1038. 

[14]

E. KeelerM. Spence and R. Zeckhauser, The optimal control of pollution, Journal of Economic Theory, 4 (1972), 19-34. 

[15]

C. D. Kolstad, Empirical properties of economic incentives and command-and-control regulations for air pollution control, Land Economics, 62 (1986), 250-268. 

[16]

E. Kyriakopoulou and A. Xepapadeas, Environmental policy, first nature advantage and the emergence of economic clusters, Regional Science and Urban Economics, 43 (2013), 101-116. 

[17]

S. A. Levin, Dispersion and population interactions, American Naturalist, 108 (1974), 207-228. 

[18]

A. Levinson and M. Scott Taylor, Unmasking the pollution haven effect, International Economic Review, 49 (2008), 223-254. 

[19]

R. E. Lucas, Why doesn't capital ‡ow from rich to poor countries?, The American Economic Review, 80 (1990), 92-96. 

[20]

R. E. Lucas, Macroeconomic priorities, The American Economic Review, 93 (2003), 1-14. 

[21]

J. Murray, Mathematical Biology Second Edition, Berlin, Springer, 1993.

[22]

D. T. Quah, Regional convergence clusters across europe, European Economic Review, 40 (1996), 951-958. 

[23]

V. Ramanathan, Atmospheric Brown Clouds: Regional Assessment Report with Focus on Asia United Nations Environment Programme, Nairobi, Kenya, 2008.

[24]

M. D. SmithJ. N. Sanchirico and J. E. Wilen, The economics of spatial-dynamic processes: Applications to renewable resources, Journal of Environmental Economics and Management, 57 (2009), 104-121. 

[25]

R. Solow, A contribution to the theory of economic growth, Quarterly Journal of Economics, 70 (1956), 65-94. 

[26]

A. Turing, The chemical basis of morphogenesis, Philosophical Transactions of the Royal Society of London, 237 (1952), 37-72. 

[27]

J. E. Wilen, Economics of spatial-dynamic processes, American Journal of Agricultural Econonomics, 89 (2007), 1134-1144. 

[28]

A. Xepapadeas, Economic Growth and the Environment, in Handbook of Environmental Economics, Volume 3: Economywide and International Environmental Issues K-G Mäler and J. Vincent (Eds), Elsevier Publishers, 2005.

[29]

A. Xepapadeas and A. Yannacopoulos, Spatial growth with exogenous saving rates, Journal of Mathematical Economics, 67 (2016), 125-137. 

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