Adjustment Costs and Long Run Spatial Agglomerations

We introduce knowledge spillovers as an externality in the production function of competitive ��firms operating in a ��nite spatial domain under adjustment costs. Spillovers are spatial as productive knowledge ��flows more easily among firms located nearby. When knowledge spillovers are not internalized by ��firms spatial agglomerations may emerge endogenously in a competitive equilibrium, however, they do not emerge at the steady state of the social optimum.