Optimal environmental policies for sustainable growth: A two-region model

I examine the sustainability of a spatial economy consisting of an advanced region and a developing region. The advanced region aids the developing region with technological knowledge on pollution abatement. The model is based mainly on that of van den Bergh and Nijkamp (1995) but differs in that the aids are determined through an optimal control method. The numerical simulation shows that the optimal control policy is thought to be effective in the sense that almost all trajectories of the welfare index of the advanced region are single-peaked with a fairly long duration of growth, and the policy favorably affects the welfare level of the developing region.