ESSAYS ON ECONOMIC GEOGRAPHY AND PLACE-BASED POLICIES

This dissertation contributes to the literature on place-based policies, studying how regional externalities and spatial linkages should shape policy design. I show that the nature of agglomeration externalities and the general equilibrium forces of trade and migration are central to understanding both the optimal design of industrial policy and the distribution of climate risk across regions. The first chapter builds on the fact that advanced economies like the US, UK, and European Union have spent billions subsidizing specific industries heterogeneously across regions, yet the optimal design of such place-based industrial policies remains unclear. I provide a theoretical framework to address this. I show that the optimal policy depends on the underlying productivity structure: whether agglomeration affects Hicks-neutral or Harrod-neutral productivity, the two dominant formulations in spatial economics. When productivity is Hicks-neutral, optimal subsidies increase with regional sector size, supporting place-based targeting; when Harrod-neutral, a uniform subsidy is optimal. Applying this framework to manufacturing in England, I find predominantly Hicks-neutral technology, supporting place-based over uniform policies The second chapter analyzes how nonlinear damages and the general equilibrium forces of trade and migration filter climate risk across time and space. Leveraging a dynamic spatial model linking countries through trade and migration, I derive analytical first- and second-order welfare approximations that decompose the mean and variance of welfare changes into damage function, trade, and migration components. Using an ensemble of temperature projections from CMIP-6 and an empirically estimated damage function, I show that climate change-induced welfare risk is large: the standard deviation of country-level projected welfare loss is on average over 8% — compared to an average welfare loss of 13% — and is spatially unequal. Spatial linkages reshape not only the level of climate damages but also their distribution: accounting for trade and migration can reduce the standard deviation of welfare changes by up to 40% in low-income, internationally integrated nations.