Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations

44 Pages Posted: 7 Oct 2009

See all articles by Anastasios Xepapadeas

Anastasios Xepapadeas

Athens University of Economics and Business; University of Bologna - School of Economics, Management, and Statistics

Efthymia Kyriakopoulou

University of Gothenburg ; Beijer Institute of Ecological Economics

Date Written: September 15, 2009

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.

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

JEL Classification: R3, Q5, H2

Suggested Citation

Xepapadeas, Anastasios and Kyriakopoulou, Efthymia, Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations (September 15, 2009). FEEM Working Paper No. 70.2009, Available at SSRN: https://ssrn.com/abstract=1473738 or http://dx.doi.org/10.2139/ssrn.1473738

Anastasios Xepapadeas (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Efthymia Kyriakopoulou

University of Gothenburg ( email )

Vasagatan 1
P.O. Box 640
Gothenburg, 405 30
Sweden
46 (0)31 786 2641 (Phone)

HOME PAGE: http://economics.handels.gu.se/english/staff/senior_lecturers-lecturers-_researchers/efthymia-kyriak

Beijer Institute of Ecological Economics ( email )

Stockholm
United States

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