Local and Global Externalities, Environmental Policies and Growth
Basque Centre for Climate Change Working Paper No. 2010-15
33 Pages Posted: 1 Nov 2010
Date Written: October 29, 2010
The paper analyzes the implications of local and global pollution when two types of abatement activities can be undertaken. One type reduces solely local pollution (e.g., use of particulate matter filters) while the other mitigates global pollution as well (e.g., application of fuel saving technologies). In the framework of a 2-country endogenous growth model, the implications of different assumptions about the degree to which global externalities are internalized are analyzed. Subsequently, we derive policy rules adapted to the different scenarios. Special attention is paid to pollution, growth and optimal policy in the case of asymmetric internalization.
Keywords: economic growth, global and local externalities, government policies
JEL Classification: O4, Q53, Q54, Q58
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