The Economics of Spatial Sustainability: General Theory and Application to Climate Change

This paper formalizes the notion of "spatial sustainability‘ of an economy in the presence of local and global environmental externalities. An extension is offered here of a new economic geography (NEG) model with environment, which relieves the standard focus on local and flow pollutants by adding a dynamic analysis of global cumulative pollution, like carbon dioxide emissions causing climate change. The model is used to assess the role of alternative spatial planning and trade policies to achieve long-term emissions reduction targets, which are consistent with sustainability. Our exercise can be especially insightful in the context of climate change, where extra emission reduction options are urgently needed to reach very ambitious emission targets.