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Externalities, growth, and regional stagnation

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  • Gunther Maier

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 hte 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, 1998. "Externalities, growth, and regional stagnation," ERSA conference papers ersa98p494, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa98p494
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    References listed on IDEAS

    as
    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. 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.
    3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    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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