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Abstract
Our paper discusses the management of global pollution issues in a North-South economic geography model with capital mobility and trading costs. We first show that a unilateral environmental policy adopted by the developed country drives the industrial firms out of the region and lowers real income. However, the ecological dumping argument has only found partial theoretical support as the Northern larger market still attracts firms. More importantly, the total effect on the environment appears ambiguous: due to multiple interactions at work, globalization can make pollution even worse. These outcomes provide arguments for international cooperation. However, although efficient in reducing global pollution, this second option hurts the South both in terms of industrial relocation and real income.