We analyze the spatio-temporal dynamics of a simple model of macroeconomic geography in which demography and pollution dynamics mutually affect each other. Pollution, by reducing the carrying capacity of the natural environment – which determines the maximum amount of people a given location can effectively bear – crucially affects labor force dynamics which in turn alter the amount of resources available for abatement activities aiming to reduce pollution. Such mutual links determine the eventual sustainability of the development process in different locations and economies, and spatial interactions further complicate the picture. We show that neglecting the existence of mutual feedback between population and pollution leads to misleading conclusions about the eventual sustainability of a specific location. We also show that even neglecting the existence of spatial externalities can lead to misleading conclusions about the sustainability of different regions in the spatial economy. This suggests thus that both the nature of the population and pollution relationship and geographical factors may play a critical role in the process of sustainable development.
