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Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

  • Anastasios Xepapadeas

    (Athens University of Economics and Business)

  • Efthymia Kyriakopoulou

    (Athens University of Economics and Business)

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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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
Date of revision:
Handle: RePEc:fem:femwpa:2009.70
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  1. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September.
  2. Tahvonen Olli & Kuuluvainen Jari, 1993. "Economic Growth, Pollution, and Renewable Resources," Journal of Environmental Economics and Management, Elsevier, vol. 24(2), pages 101-118, March.
  3. 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.
  4. 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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  7. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April.
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  9. 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..
  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  11. Fujita, Masahisa & Mori, Tomoya, 1996. "The role of ports in the making of major cities: Self-agglomeration and hub-effect," Journal of Development Economics, Elsevier, vol. 49(1), pages 93-120, April.
  12. Sonia Ben Kheder & Natalia Zugravu, 2008. "The pollution haven hypothesis : a geographic economy model in a comparative study," Documents de travail du Centre d'Economie de la Sorbonne v08083, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  13. Paul Krugman, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-174, Spring.
  14. 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.
  15. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  16. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
  17. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  18. 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.
  19. 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.
  20. Lange Andreas & Quaas Martin F, 2007. "Economic Geography and the Effect of Environmental Pollution on Agglomeration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-33, October.
  21. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, vol. 70(4), pages 1445-1476, July.
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