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The Economic Geography of Innovation

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  • Egger, Peter
  • Loumeau, Nicole

Abstract

This paper outlines a quantitative global multi-region model to assess the importance of country-level investment incentives towards innovation at the level of 5,633 regions of heterogeneous size. While incentives vary across countries (and time), the responses are largely heterogeneous across regions within as well as across countries. The reason for this heterogeneity roots in average technology differences -- in terms of the production of both output and innovation -- as well as in the geography (location) and amenities across regions. The model and quantitative analysis take the tradability of output as well as the mobility of people across regions into account. In the counterfactual equilibrium analysis we focus on the effects of R&D-investment incentives on three key variables -- place-specific employment, productivity, and welfare -- in a scenario where investment incentives towards innovation are abandoned. We find that the use of policy instruments which are designed to stimulate private R&D are globally beneficial in terms of productivity and welfare. In particular, low-amenity, peripheral places, and ones where patenting is relatively less common than elsewhere benefit more strongly than others, which implies that the studied nation-wide investment incentives also work as place-based policies. According to the quantification, about one-tenth of the long-run growth rate of real GDP on the globe can be attributed to the use of R&D investment incentives as used in the year 2005 alone.

Suggested Citation

  • Egger, Peter & Loumeau, Nicole, 2018. "The Economic Geography of Innovation," CEPR Discussion Papers 13338, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13338
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Geography; Innovation; labor mobility; Quantitative general equilibrium; structural estimation; Trade;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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