A dynamic analysis of the income–pollution relationship in a two-country setting

Abstract

This research explores the presence of the income-pollution relationship in a dynamic twocountry 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 awareness, 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 transboundary 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 nonlinear 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.

Income, coal consumption, and the environmental Kuznets curve in Vietnam

“…The ECK hypothesis states that environmental degradation first grows at a diminishing rate and subsequently descends at an increasing rate with income (Grossman and Krueger 1995;Filippiadis and Litina 2022). In other words, the income-environment relation is generally depicted as a nonlinear inverted U-shaped curve.…”