and

The observed relationship between economic development and environmental pollu-tion implies a non-homogeneous spatial pattern between these two characteristics. We consider two similar interacting economies with adverse effects from pollution on capi-tal accumulation. We show that differential flow rates of capital and polluting activities between the two economies can generate spatial patterns which could lead to a spatially heterogeneous steady state, both with respect to capital accumulation and pollution ac-cumulation. Thus there is divergence and not convergence and regional inequalities tend to persist. Policies aiming at balancing the flows of capital and polluting activities might work towards reducing regional inequalities.