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Innovation through intra and inter-regional interaction in economic geography

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  • Jos'e M. Gaspar
  • Minoru Osawa

Abstract

We develop a two-region economic geography model with vertical innovations that improve the quality of manufactured varieties produced in each region. The chance of innovation depends on the \emph{related variety}, i.e. the importance of interaction between researchers within the same region rather than across different regions. As economic integration increases from a low level, a higher related variety is associated with more agglomerated spatial configurations. However, if the interaction with foreign scientists is relatively more important for innovation, economic activities may (completely) re-disperse after an initial phase of agglomeration due to the increase in the relative importance of a higher chance of innovation in the less industrialized region. This non-monotonic relationship between economic integration and spatial imbalances may exhibit very diverse qualitative properties, not yet described in the literature.

Suggested Citation

  • Jos'e M. Gaspar & Minoru Osawa, 2022. "Innovation through intra and inter-regional interaction in economic geography," Papers 2212.14475, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2212.14475
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