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Endogenous Economic Growth through Connectivity

  • Zon, Adriaan van

    ()

    (UNU-MERIT, and Maastricht University)

  • Mupela, Evans

    ()

    (UNU-MERIT)

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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Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 001.

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Date of creation: 2010
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Handle: RePEc:unm:unumer:2010001
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  1. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  2. Duranton, Gilles & Turner, Matthew A, 2008. "Urban Growth and Transportation," CEPR Discussion Papers 6633, C.E.P.R. Discussion Papers.
  3. Brunner, Martin & Strulik, Holger, 2002. "Solution of perfect foresight saddlepoint problems: a simple method and applications," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 737-753, May.
  4. 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.
  5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  6. Fukushima, Marcelo & Kikuchi, Toru, 2008. "Competing Communications Networks and International Trade," MPRA Paper 7815, University Library of Munich, Germany.
  7. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  8. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November.
  9. 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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