A Regional Model of Endogenous Growth with Creative Destruction
We examine endogenous growth through vertical innovations in a two region model with partial regional and varietal knowledge spillovers. This paper extends the growth literature by adding a regional endogenous growth model with improvements in product quality, instead of a product variety engine for growth, where we account for partial knowledge spillovers in R&D. Starting with the quality ladders endogenous growth model we add traditional goods production by unskilled workers, location as a factor in R&D spillovers, migration of knowledge workers and vary the freeness of trade. Production of each manufactured variety is contestable through vertical innovation based on available knowledge and as a result, firms choose a location to maximise the productivity of R&D, maintain their niche monopoly and minimise transport costs. With contestability, knowledge spillovers provide for additional growth and the partial nature of spillovers causes an additional clustering effect encouraging agglomeration. Growth is highest when there is full agglomeration in one location, as knowledge spillovers are greater with manufacturing concentration. Agglomerated locations are reliant on local inter-varietal knowledge spillovers for growth while peripheral locations rely on trade and regional knowledge spillovers. In the long run, locations experience equal growth rates. If a location becomes agglomerated, it has higher long-run wages and higher growth rates during the transition to the long run. The model offers policy implications for lagging economies to improve inter-regional knowledge spillovers while agglomerated economies should be more concerned with business interaction within the region. Policies which reduce barriers to migration will increase long run growth rates by accelerating the transition to agglomeration.
|Date of creation:||07 Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: + 64 (0)7 838 4758 (Administrator)
Fax: + 64 7 838 4331
Web page: http://cms.mngt.waikato.ac.nz/departments/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philip McCann, 2007. "Sketching Out a Model of Innovation, Face-to-face Interaction and Economic Geography," Spatial Economic Analysis, Taylor & Francis Journals, vol. 2(2), pages 117-134.
- Aghion, Philippe & Howitt, Peter, 1992.
"A Model of Growth through Creative Destruction,"
Econometric Society, vol. 60(2), pages 323-51, March.
- Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
- Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- Alessandra Faggian & Philip McCann, 2009. "Human capital, graduate migration and innovation in British regions," Cambridge Journal of Economics, Oxford University Press, vol. 33(2), pages 317-333, March.
- Paul Krugman, 1990.
"Increasing Returns and Economic Geography,"
NBER Working Papers
3275, National Bureau of Economic Research, Inc.
- Koen Frenken & Ron A. Boschma, 2007.
"A theoretical framework for evolutionary economic geography: industrial dynamics and urban growth as a branching process,"
Journal of Economic Geography,
Oxford University Press, vol. 7(5), pages 635-649, September.
- Koen Frenken & Ron A. Boschma, 2007. "A theoretical framework for Evolutionary Economic Geography: Industrial dynamics and urban growth as a branching process," Papers in Evolutionary Economic Geography (PEEG) 0701, Utrecht University, Section of Economic Geography, revised Mar 2007.
- Kyoko Hirose & Kazuhiro Yamamoto, 2007.
"Knowledge spillovers, location of industry, and endogenous growth,"
The Annals of Regional Science,
Springer, vol. 41(1), pages 17-30, March.
- Kyoko Hirose & Kazuhiro Yamamoto, 2005. "Knowledge spillovers, location of industry, and endogenous growth," Discussion Papers in Economics and Business 05-15, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Gilles Duranton & Michael Storper, 2005.
"Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs,"
CEP Discussion Papers
dp0683, Centre for Economic Performance, LSE.
- Gilles Duranton & Michael Storper, 2008. "Rising trade costs? Agglomeration and trade with endogenous transaction costs," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 292-319, February.
- Gilles Duranton & Michael Storper, 2005. "Rising trade costs?: agglomeration and trade with endogenous transaction costs," LSE Research Online Documents on Economics 19898, London School of Economics and Political Science, LSE Library.
- Duranton, Gilles & Storper, Michael, 2005. "Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs," CEPR Discussion Papers 4933, C.E.P.R. Discussion Papers.
- Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
- Martin, Philippe, 1998.
"Public Policies, Regional Inequalities and Growth,"
CEPR Discussion Papers
1841, C.E.P.R. Discussion Papers.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
- Yamamoto, Kazuhiro, 2003. "Agglomeration and growth with innovation in the intermediate goods sector," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 335-360, May.
- Martin, Philippe & Ottaviano, Gianmarco, 1996.
"Growing Locations: Industry Location in a Model of Endogenous Growth,"
CEPR Discussion Papers
1523, C.E.P.R. Discussion Papers.
- Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, vol. 43(2), pages 281-302, February.
- Baldwin, Richard E & Forslid, Rikard, 2000. "The Core-Periphery Model and Endogenous Growth: Stabilizing and Destabilizing Integration," Economica, London School of Economics and Political Science, vol. 67(267), pages 307-24, August.
- Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
When requesting a correction, please mention this item's handle: RePEc:wai:econwp:12/02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Brian Silverstone)
If references are entirely missing, you can add them using this form.