Natural amenities, increasing returns and urban development

This article examines the roles of natural amenities and increasing returns in city formation and urban dynamics with a focus on the interaction between them. The spatial distribution of amenities is shown to be a major determinant of urban development patterns; and the role of amenities is reinforced by increasing returns, which promote agglomeration and human capital accumulation. Cases of partial urbanization and full urbanization of population are distinguished from each other and the economy's possible transformation from one state to another is investigated. The spatial distribution of amenities and increasing returns affect human capital accumulation, which affects the trajectory of economic growth. Empirical evidence is presented to support the theoretical findings.