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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

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  • Anastasios Xepapadeas

    (Athens University of Economics and Business)

  • Efthymia Kyriakopoulou

    (Athens University of Economics and Business)

Abstract

We explain the spatial concentration of economic activity, in a model of economic geography, when the cost of environmental policy - which is increasing in the concentration of emissions - and an immobile production factor act as centrifugal forces, while positive knowledge spillovers and iceberg transportation costs act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces. The above effects govern firms’ location decisions and as a result, they define the distribution of economic activity across space. We derive the rational expectations equilibrium and the social optimum, compare the outcomes and characterize the optimal spatial policies.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.70.

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Date of creation: Sep 2009
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Handle: RePEc:fem:femwpa:2009.70

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Keywords: Agglomeration; Spatial Economics; Environmental Policy; Knowledge Spillovers; Transportation Cost;

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References

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  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  2. Yannis M. Ioannides & Henry G. Overman & Esteban Rossi-Hansberg & Kurt Schmidheiny, 2007. "The effect of information and communication technologies on urban structure," LSE Research Online Documents on Economics 19700, London School of Economics and Political Science, LSE Library.
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  7. Oded Hochman & Gordon Rausser & Richard Arnott, 2008. "Pollution and Land Use: Optimum and Decentralization," Working Papers 200805, University of California at Riverside, Department of Economics, revised Mar 2008.
  8. Xepapadeas, Anastasios, 2005. "Economic growth and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pages 1219-1271 Elsevier.
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  16. Michael Greenstone, 1998. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufacturers," Working Papers 787, Princeton University, Department of Economics, Industrial Relations Section..
  17. Brock, William & Xepapadeas, Anastasios, 2008. "Diffusion-induced instability and pattern formation in infinite horizon recursive optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2745-2787, September.
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  22. Elbers Chris & Withagen Cees, 2003. "Environmental Policy, Population Dynamics and Agglomeration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-23, December.
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Cited by:
  1. Costantini, Valeria & Mazzanti, Massimiliano & Montini, Anna, 2013. "Environmental performance, innovation and spillovers. Evidence from a regional NAMEA," Ecological Economics, Elsevier, vol. 89(C), pages 101-114.

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