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The Effects of economic integration on regional growth, an evolutionary model

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  • Caniels, Marjolelein
  • Verspagen, Bart

Abstract

This paper will present a multi-region-multi-country model in which inter-regional knowledgespillovers determine the growth of regions. Key parameters in the model are the learningcapability of a region, and the exogenous rate of knowledge generation (R&D). The intensityof spillovers depends on geographical distance between regions. The model is investigated bymeans of simulation techniques. What results is a core-periphery situation, the exact form ofwhich depends on the assumed spatial structure. One surprising result of the analysis is thatlarger technological differences between regions may lead to smaller disparity in terms of thelong-run spatial distribution of GDP per capita.The impact of economic integration is investigated by comparing two different aspects ofthe model. First, examining a fixed exchange rate system versus a system of flexible exchangerates results in conditions (constellations of parameters) under which fixed exchange rates(compared to flexible exchange rates) generate less disparity across regions. However,depending on the parameter values, fixed exchange rates may also generate more disparity,leading to the conclusion that the effect of monetary integration is ambiguous.Second, the impact of barriers to knowledge spillovers is analysed by assuming that crossborder knowledge flows are hampered compared to inter-country flows. This results in theobservation that reduced cross border flows have a large impact when regions are initiallyunequal with respect to their exogenous rate of knowledge generation or their learningcapability. In these cases, the resulting trends in overall disparity are quite different from thetrends established in a situation of no barriers to knowledge spillovers.
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  • Caniels, Marjolelein & Verspagen, Bart, 1999. "The Effects of economic integration on regional growth, an evolutionary model," ERSA conference papers ersa99pa219, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa99pa219
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    2. Jaakko Simonen, 2006. "Regional externalities in the dynamic system of three regions," Papers in Regional Science, Wiley Blackwell, vol. 85(3), pages 421-442, August.
    3. Tieli Li & Miao Fu & Xiaolan Fu, 2013. "Regional technology development path in an open developing economy: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1405-1418, April.

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