A Harmonization Of First And Second Natures

This paper investigates the joint impact of the rst nature and the second nature forces on
industry location. Towards this aim, we develop a two-region new economic geography model
where local factor congestion and location advantages compete with demand linkages and
product market crowding. In particular we study the case of absolute location advantage in
a single industry model and the case of comparative advantages in a two-industry model. We
characterize the structure of industries and discuss the possibilities of catastrophic changes,
endogenous industrial asymmetries and specialization. We nd that absolute location advantage
are associated with a smooth agglomeration process and comparative advantages
with a catastrophic process.