Population and Pollution Interactions in a Spatial Economic Model

We analyze the spatio-temporal dynamics of a simple model of economic geography in which population and pollution dynamics are mutually interdependent. Pollution by reducing the carrying capacity of the natural environment, which determines the maximum amount of people a given location can effectively bear, affects labor force dynamics which in turn alter pollution emissions. Such mutual links determine the development path followed by different locations, and spatial interactions further complicate the picture. We show that neglecting the existence of spatial externalities can lead to misleading predictions about the development path followed by different locations in the spatial economy.