We develop an urban and a trade model to study spatial specialization patterns in cities, regions and countries. In the first chapter we study the optimal distribution of business and residential land in a circular city. Once the optimum is characterized, we analyze the effect of changes in commuting costs and externality parameters. We also propose policies like labor subsidies, land taxes and zoning restrictions that can implement the optimal allocation as an equilibrium, or close the gap between the optimal and equilibrium allocations. The results show that business land is more concentrated at the center of the city in the optimum and that higher commuting costs increase the difference between optimal and equilibrium allocations. We test, and do not reject, some of these implications.; In the second chapter we present a trade model with a continuum of regions, transportation costs and agglomeration effects via production externalities. The model is consistent with evidence from estimations of the Gravity Equation. We analyze the effects of trade barriers and compare them to the effects of transportation costs. The results imply a sharp distinction between both, in terms of the specialization patterns and trade flows that they produce in equilibrium. The effect of trade barriers is amplified by the production externalities thereby producing important border effects, as documented in the empirical literature. We also study the equilibrium specialization and trade patterns for different levels of transportation costs. Low transportation costs imply the classic core-periphery specialization pattern. In contrast, high transportation costs result in many areas producing each of the goods in the model.
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