Innovation Diffusion and the Evolution of Regional Disparities

This article investigates the effect that the interaction between the creation and the spatial diffusion of technology brings on regional disparities. We will show that an increase in the pace of innovation, as it has happened with the "technological revolution" can engender regional income disparities; we will also show that if, afterwards, the speed of di®usion also increases enough, these disparities can fade out. The paper will not, at this stage, address the problem of which e®ect will eventually prevail in the real World, since the process of ICTs diffusion is both increasing the easiness of transfer of blueprinted knowledge across places and having e®ects on the spatial concentration of innovation. To analyse the problem, we will first build a simple model with technological disparities as the source of income disparities and a set up apt to represent all the knowledge flows. The first result is that wide enough technological differences can be the source of income disparities. The basic model will then be used in two different ways for the study of innovation and diffusion mechanisms. We will show that the most important variable to determine if income disparities exist is the ratio between the speed of diffusion and the speed of innovation. In particular, when this ratio is low, the most likely prediction is an equilibrium with both technological and income disparities. For intermediate values, technological disparities will exist, but will not be large enough to generate income disparities; for higher values, there will not be technological disparities anymore and, consequently, no income disparities. The paper also supports an important policy conclusion: when trying to reduce regional disparities, targeting innovation di®usion and the acquisition of external knowledge by the less developed region will be more e®ective than favoring own innovation if the knowledge base of the lagging region is not wide enough. This is due to the fact that innovation is a process cumulative on previously possessed knowledge, which can be a scarce resource in most lagging regions.