POLLUTION DIFFUSION AND ABATEMENT ACTIVITIES ACROSS SPACE AND OVER TIME

We analyze the spatio-temporal dynamics of capital and pollution in an economic growth model with purposive environmental protection activities. The production process of a unique homogeneous good generates pollution, thus the increases in output associated with economic growth tend to rise the stock of pollution. Pollution is a negative production externality which thus feeds back on the economy lowering the level of output; in order to compensate for such a negative eect associated with economic development, pollution is reduced by publicly funded abatement activities. We rstly consider a Solow-type framework in which economic and environmental policies are completely exogenous, and then we move to a Ramsey- type context in which they are endogenously determined. We analyze the spatio-temporal dynamics of the model economy through numerical simulations, and we consider two dierent specications of the production function (a globally concave and a convex-concave technology) in order to stress the role that eventual poverty traps might play on both economic and environmental outcomes.