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Is Agglomeration really Good for Growth? Global Efficiency, Interregional Equity and Uneven Growth

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  • Fabio Cerina
  • Francesco Mureddu

Abstract

According to the New Economic Geography and Growth (NEGG) literature (Baldwin et al. (2004)), spatial concentration of industrial activities increases growth at the regional and aggregate level without generating regional growth differentials. This view is not supported by the data. We extend the canonical model with an additional sector producing non-tradable goods which benefits from localized knowledge spillovers coming from R&D performing industrial sector. This departure, motivated by the evidence, introduces an anti-growth effect of agglomeration for both the deindustrializing and the industrializing regions and leads to two novel results: 1) when agglomeration takes place, growth is lower in the periphery; 2) agglomeration may have a negative effect on the growth rate of real income, both at the regional and at the aggregate level. In particular, the economy as a whole might suffer a dynamic loss from agglomeration when: 1) the spatial range of the technological spillovers within the R&D sector; 2) the external benefit of local and foreign knowledge capital on non-tradable sector productivity; 3) the expenditure share on non-tradable goods are all large enough. These results are consistent with the empirical evidence reporting regional real income divergence and according to which the trade-off between aggregate growth and interregional equity loses relevance in more advanced stages of development. Our conclusions have relevant policy implications as they suggest that, contrary to the standard view, current EU and US regional policies favouring industrial dispersion might be welfare-improving both at the regional and the aggregate level and may reduce regional income disparities.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c015_022.

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Length: 33 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:deg:conpap:c015_022

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Keywords: Aggregate real growth; regional real growth; interregional equity; non-tradables; localized knowledge spillovers;

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References

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  1. Kuznets, Simon, 1973. "Modern Economic Growth: Findings and Reflections," American Economic Review, American Economic Association, vol. 63(3), pages 247-58, June.
  2. Daron Acemoglu & Veronica Guerrieri, 2006. "Capital Deepening and Non-Balanced Economic Growth," NBER Working Papers 12475, National Bureau of Economic Research, Inc.
  3. Jungsoo Park, 2004. "International and Intersectoral R&D Spillovers in the OECD and East Asian Economies," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 739-757, October.
  4. Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  5. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
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  7. F. Cerina & F. Mureddu, 2008. "Agglomeration and Growth with Endogenous Expenditure Shares," Working Paper CRENoS 200820, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  8. Giannetti, Mariassunta, 2002. "The effects of integration on regional disparities: Convergence, divergence or both?," European Economic Review, Elsevier, vol. 46(3), pages 539-567, March.
  9. Nuria Quella, 2009. "Knowledge Spillovers and TFP Growth Rates," Department of Economics Working Papers 09-03, Stony Brook University, Department of Economics.
  10. Yamamoto, Kazuhiro, 2003. "Agglomeration and growth with innovation in the intermediate goods sector," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 335-360, May.
  11. Francisco J. Buera & Joseph P. Kaboski, 2009. "Can Traditional Theories of Structural Change Fit The Data?," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 469-477, 04-05.
  12. R. Paci & F. Pigliaru, 2001. "Technological Diffusion, Spatial Spillovers And Regional Convergence In Europe," Working Paper CRENoS 200101, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  13. Bianca Potì & Giovanni Cerulli, 2007. "Heterogeneity of innovation strategies and firms’ performance," CERIS Working Paper 200706, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  14. Murata, Yasusada, 2008. "Engel's law, Petty's law, and agglomeration," Journal of Development Economics, Elsevier, vol. 87(1), pages 161-177, August.
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Cited by:
  1. F. Cerina & F. Mureddu, 2011. "Structural Change and Growth in a NEG model," Working Paper CRENoS 201118, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Vasco Leite & Sofia Castro & João Correia-da-Silva, 2013. "A third sector in the core-periphery model: non-tradable goods," The Annals of Regional Science, Springer, vol. 50(1), pages 71-108, February.
  3. Kümpel, Arndt, 2011. "Устойчивое региональное развитие, инновации и государствeнный потенциал
    [Sustainable regional development, innovation and state capaci
    ," MPRA Paper 33967, University Library of Munich, Germany, revised 08 Oct 2011.
  4. Kümpel, Arndt, 2011. "Sustainable regional development, innovation and state capacity," MPRA Paper 33966, University Library of Munich, Germany, revised 08 Oct 2011.

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