Abstract: Going beyond the New Economic Geography focus on progress in transportation cost, this paper introduces the dynamic effect of environmental technology on residential location in long-run spatial equilibrium. It develops a model with two regions in which a spatial public good (environmental quality) is degraded by externalities of differentiated private consumption goods, but degradation is abated by those of a single private environmental good. Producing the imperfectly tradable consumption goods requires both mobile workers and immobile workers, while the perfectly tradable environmental good requires only immobile workers. Mobile workers’ location choices are explained by regional disparities in environmental quality and price indexes, rather than in wages. Progress in transportation technology dynamically improves freeness of trade, but progress in environmental technology has the opposite effect. Dispersion occurs when progress in transportation technology dominates, while greater progress in abatement technology may lead to agglomeration.