Abstract

We study how local environmental pollution affects spatial patterns of economic activities when workers can migrate. Based on a New Economic Geography model, we analytically characterize the stability conditions for three different types of equilibria: symmetric spreading, partial and full agglomeration. We show that the extent of agglomeration crucially depends on the damages caused by local pollution. We thereby provide a unified framework for discussing different relationships between the extent of agglomeration and trade freeness that have been found in the literature.