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Modelling knowledge creation, investment decisions and economic growth in a spatial CGE setting

Listed author(s):
  • Di Comite, Francesco

    ()

    (European Commission, DG JRC-IPTS)

  • Potters, Lesley

    (European Commission, DG JRC-IPTS)

The expansion of knowledge is commonly understood as a key driver of economic growth. Yet, while knowledge production and economic growth have been extensively studied in isolation, few studies have tried to formalise the mechanism connecting the two elements from a spatial general equilibrium perspective. To fill this gap, in this paper we propose a model of knowledge creation building upon the multiregional spatial CGE model RHOMOLO to allow for endogenous knowledge production and investment decisions at the regional level. The innovation process is modelled through the interaction between researchers, investors and final good producers. Specifically, researchers in each region use their human capital together with local R&D-embedded capital and intermediates to produce ideas, enhanced by knowledge spillovers crossing regional borders. These ideas are then purchased by local investors and combined with their human capital and intermediate goods to be turned into new R&D-embedded capital, which adds up to the existing stock after having replaced the obsolete one. Lastly, after having paid a fixed entry cost, in each region firms produce goods for final and intermediate consumption by renting local R&D-embedded and human capital and combining it with an interregional bundle of intermediate goods, their productivity being enhanced by the availability of local public goods and services. The model is designed to be calibrated using a regionalised version of standard Social Accounting Matrices, such as the ones provided by the World Input Output Database.

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Article provided by Asociación Española de Ciencia Regional in its journal Investigaciones Regionales.

Volume (Year): (2014)
Issue (Month): 29 ()
Pages: 47-75

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Handle: RePEc:ris:invreg:0261
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  1. Raquel Ortega-Argilés & Lesley Potters & Marco Vivarelli, 2011. "R&D and productivity: testing sectoral peculiarities using micro data," Empirical Economics, Springer, vol. 41(3), pages 817-839, December.
  2. Riccardo Crescenzi & Andrés Rodriguez-Pose & Michael Storper, 2007. "The territorial dynamics of innovation: a Europe-United States comparative analysis," Journal of Economic Geography, Oxford University Press, vol. 7(6), pages 673-709, November.
  3. Brandsma, Andries & Di Comite, Francesco & Diukanova, Olga & Kancs, d’Artis & López-Rodríguez, Jesús & Persyn, Damiaan & Potters, Lesley, 2014. "Assessing policy options for the EU Cohesion Policy 2014-2020," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 29, pages 17-46.
  4. Michael Storper & Anthony J. Venables, 2004. "Buzz: face-to-face contact and the urban economy," Journal of Economic Geography, Oxford University Press, vol. 4(4), pages 351-370, August.
  5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
  6. Johannes Bröcker & Rüdiger Soltwedel, 2010. "Agglomeration and growth in knowledge-based societies: an introduction to this special issue," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(1), pages 1-4, August.
  7. Michael E. Porter, 2000. "Location, Competition, and Economic Development: Local Clusters in a Global Economy," Economic Development Quarterly, , vol. 14(1), pages 15-34, February.
  8. Bye, Brita & Fæhn, Taran & Heggedal, Tom-Reiel, 2009. "Welfare and growth impacts of innovation policies in a small, open economy; an applied general equilibrium analysis," Economic Modelling, Elsevier, vol. 26(5), pages 1075-1088, September.
  9. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
  10. Andries Brandsma & d'Artis Kancs & Philippe Monfort & Alexandra Rillaers, 2015. "RHOMOLO: A dynamic spatial general equilibrium model for assessing the impact of cohesion policy," Papers in Regional Science, Wiley Blackwell, vol. 94, pages 197-221, November.
  11. Peter Howitt, 2000. "Endogenous Growth and Cross-Country Income Differences," American Economic Review, American Economic Association, vol. 90(4), pages 829-846, September.
  12. Diukanova, Olga & López-Rodríguez, Jesús, 2014. "Regional Impacts of non-R&D Innovation Expenditures across the EU Regions: Simulation Results Using the Rhomolo CGE Model," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 29, pages 91-111.
  13. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
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