The relationship between emissions and income growth for a transboundary pollutant

• We model the income-emissions relationship for a transboundary pollutant.
• A pollution-spillover effect introduces strategic interaction among countries.
• Individual-country dynamics depend on relative positions in the income distribution.
• Otherwise-identical countries behave differently along the income growth path.
• Emerging economies have higher emissions than developed ones had at same incomes.

We identify a pollution-spillover effect in the relationship between emissions and income growth for a transboundary pollutant. This effect causes countries that are otherwise identical to follow very different emissions paths as they grow, due only to differences in the positions they occupy along the growth path. Emissions from a country of any given income depend on when it reaches that income level relative to other countries moving along the same income growth path. This variation across countries arises whenever the damage function is strictly convex in the level of global emissions. In such a setting, the emissions level for a country at any point in time depends on the level of emissions from all other countries at that time. This means that a country of given income will behave differently depending on whether other countries have high emissions (at the peak of their emissions paths) or low emissions (at the early or late stages of their emissions paths). The behavior of any individual country, at any point in time, therefore depends on its relative position in the global income distribution.