REGIONAL POLLUTION AND MULTINATIONAL FIRMS

This paper investigates the incidence of pollution control in a two-co untry, two good model of trade and investment when capital is internat ionally mobile. In this context, we show the trade-off between the reg ulation of pollution and national income in the host country and the i nterrelationship between policies pursued in the host country and the economy of the source country. One noteworthy result is that more rest rictive pollution controls in the host country may cause a decline in the real income of the source country, the home of multinational firms .