On pollution and R&D-based growth in a trade model between countries concerned and unconcerned about climate change ∗ Francisco Cabo † Guiomar Mart´ ın-Herr´ an †‡ Mar´ ıa Pilar Mart´ ınez-Garc´ ıa § March 2, 2012 Abstract In a bipolar world with two different regions, this paper analyzes the circumstances under which the determination of one region to acknowledge the problem of global warming when choosing optimal emissions does not induce its counterpart to take advantage and increase its own emissions. Further we analyze if a global reduction in emissions does necessarily lead to a reduction in the speed of growth. Growth in both regions comes as a result of an increment in the number of varieties of intermediate goods, while emissions are linked to the production of final output which utilizes timber as a productive input. Forests act as a carbon sink, and are located in the region unconcerned about the effect of its productive process on the emission of pollutants, and finally about the problem of global warming. This region trades forest products in exchange for technology developed in a technologically leading region. Economic growth and environmental quality are compared when this latter region does or does not consider the interaction between the economic activities and the concentration of pollutants in the atmosphere. * The authors have been partially supported by MEC under projects ECO2008-01551/ECON, ECO2011-204352 and by JCYL under project VA001A10-1. All projects are co-financed by FEDER funds. † IMUVA, Universidad de Valladolid, Spain. ‡ IMUVA, Universidad de Valladolid, Spain. § Universidad de Murcia, Spain. 1