A Two-Sector Model of Creative Capital Driven Regional Economic Growth

We study aspects of economic growth in a region that is creative in the sense of Richard Florida. We model creativity by supposing that the region under study has two sectors. The first sector uses physical capital $$\left\{ {K\left( t \right) } \right\} $$ K t and trained workers $$\left\{ {A\left( t \right) W\left( t \right) } \right\} $$ A t W t to produce creative capital $$\left\{ {R\left( t \right) } \right\} .$$ R t . The second sector uses physical and creative capital to produce a final consumption good $$\left\{ {Q\left( t \right) } \right\} .$$ Q t . In this setting, we accomplish four tasks. First, we derive the equations of motion for physical capital per trained worker $$\left( k \right) $$ k and creative capital per trained worker $$\left( r \right) .$$ r . Second, we find combinations of k and r for which $$\dot{k}=\dot{r}=0.$$ k ˙ = r ˙ = 0 . Third, we investigate whether the economy of our creative region has a balanced growth path (BGP). Finally, assuming that our region is initially on a BGP, we study the impact of a permanent increase in the savings rate $$\left( s \right) $$ s on the trajectory of output per worker.