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Externalities, Growth, and Regional Stagnation

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  • Gunther Maier

    (Institute for Urban and Regional Studies, Vienna University of Economics and Business Administration)

Abstract

This paper discusses the impact of externalities on economic growth and the long term distribution of economic activities in a system of two regions. We use a standard neoclassical growth model of the Solow-type and augment it with a random process of innovation allocation. The long term behavior of this model is analyzed. As it turns out, the dynamic behavior of our model differs fundamentally from that of the standard neoclassical growth model. In the long run always one of the regions attracts all the future innovation and growth while the other region stagnates. We show that this outcome results from an externality in the process of innovation allocation and discuss its significance and sensitivity to changes in the model structure.

Suggested Citation

  • Gunther Maier, 1999. "Externalities, Growth, and Regional Stagnation," Working Papers geewp03, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    • Handle: RePEc:wiw:wiwgee:geewp03
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
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    Cited by:

    1. Martin Zagler, 2006. "Does Economic Growth Exhibit A Different Impact On Job Creation And Job Destruction?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(5), pages 672-683, November.

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