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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.

Economic Geography and the Effect of Environmental Pollution on Agglomeration