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Modelling knowledge creation, investment decisions and economic growth in a spatial CGE setting

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  • Di Comite, Francesco

    (European Commission, DG JRC-IPTS)

  • Potters, Lesley

    (European Commission, DG JRC-IPTS)

Abstract

The expansion of knowledge is commonly understood as a key driver of economic growth. Yet, while knowledge production and economic growth have been extensively studied in isolation, few studies have tried to formalise the mechanism connecting the two elements from a spatial general equilibrium perspective. To fill this gap, in this paper we propose a model of knowledge creation building upon the multiregional spatial CGE model RHOMOLO to allow for endogenous knowledge production and investment decisions at the regional level. The innovation process is modelled through the interaction between researchers, investors and final good producers. Specifically, researchers in each region use their human capital together with local R&D-embedded capital and intermediates to produce ideas, enhanced by knowledge spillovers crossing regional borders. These ideas are then purchased by local investors and combined with their human capital and intermediate goods to be turned into new R&D-embedded capital, which adds up to the existing stock after having replaced the obsolete one. Lastly, after having paid a fixed entry cost, in each region firms produce goods for final and intermediate consumption by renting local R&D-embedded and human capital and combining it with an interregional bundle of intermediate goods, their productivity being enhanced by the availability of local public goods and services. The model is designed to be calibrated using a regionalised version of standard Social Accounting Matrices, such as the ones provided by the World Input Output Database.

Suggested Citation

  • Di Comite, Francesco & Potters, Lesley, 2014. "Modelling knowledge creation, investment decisions and economic growth in a spatial CGE setting," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 29, pages 47-75.
  • Handle: RePEc:ris:invreg:0261
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    References listed on IDEAS

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    More about this item

    Keywords

    multiregional spatial CGE; Endogenous R&D; Endogenous investment decisions;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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