Environmental policy, first nature advantage and the emergence of economic clusters

We explain the spatial concentration of economic activity when the cost of environmental policy – which is increasing in the concentration of pollution – acts as a centrifugal force, while positive knowledge spillovers and a site with natural cost advantage act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces which eventually determine the distribution of economic activity…

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