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Endogenous Economic Growth through Connectivity

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  • Zon, Adriaan van

    () (UNU-MERIT, and Maastricht University)

  • Mupela, Evans

    () (UNU-MERIT)

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    Abstract

    In this paper we show the benefits of regional connectivity and specialization to growth. Starting with one region we show how welfare measured by utility per head increases as the number of connected regions increase. We assume a common connectivity infrastructure implemented by satellite, through which the 'Great Connector' (GC) is able to add new regions to the pool of connected regions by taking a tax form those already connected. We find that increasing production costs leads to faster transitions towards the steady state whereas increasing transportation and communication costs tends to lengthen the transition. The results point to reductions in transportation and communication costs in particular as a suitable vehicle to speed up growth. The results also show a strong positive effect of reductions in the cost of making new connections. This has a significant impact on both the steady state growth rate and on transitional growth, while significantly reducing the transition period.

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    File URL: http://www.merit.unu.edu/publications/wppdf/2010/wp2010-001.pdf
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    Bibliographic Info

    Paper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 001.

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    Date of creation: 2010
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    Handle: RePEc:dgr:unumer:2010001

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    Web page: http://www.merit.unu.edu

    Related research

    Keywords: Connectivity; Satellites; Growth; Specialization; Networks;

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    1. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
    2. Lars-Hendrik Röller & Leonard Waverman, 1996. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," CIG Working Papers FS IV 96-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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    7. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
    8. Romp, Ward & de Haan, Jakob, 2005. "Public capital and economic growth: a critical survey," EIB Papers 2/2005, European Investment Bank, Economics Department.
    9. Belleflamme, Paul & Picard, Pierre & Thisse, Jacques-Francois, 2000. "An Economic Theory of Regional Clusters," Journal of Urban Economics, Elsevier, vol. 48(1), pages 158-184, July.
    10. Fukushima, Marcelo & Kikuchi, Toru, 2008. "Competing Communications Networks and International Trade," MPRA Paper 7815, University Library of Munich, Germany.
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    12. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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