Knowledge spillovers have recently been analysed by Barde (2009) and Ostbye (2010) in a spatial general equilibrium framework. Both studies lack explicit micro foundations for the spillovers - spillovers just take place and depend on firm density. The models must therefore be seen as reduced...

Using a generalized version of the Venables (International Economic Review, 37: 341-359) model, this article explores the relative locations of two vertically linked sectors with knowledge spillovers. Analytical investigation shows that the dynamic properties of the Venables model are...