Working Paper: CEPR ID: DP1523
Authors: Philippe Martin; Gianmarco I.P. Ottaviano
Abstract: This paper constructs a model of endogenous growth and endogenous industry location where the two interact. We show that with global spillovers in R&D, a high growth rate and a high level of transaction costs are associated with relocation of the newly created firms to the South (the location with a low initial human capital). With local spillovers in R&D, this activity will be agglomerated in the North and the rate of innovation will increase with the concentration of firms in the North. This in turn implies that a decrease of transaction costs through, for example, trade integration, will increase the growth rate because it leads to a higher industrial concentration of firms where the R&D is located. We show that industrial concentration improves welfare only for low enough transaction costs and high enough spillovers.
Keywords: endogenous growth; new geography; R&D
JEL Codes: F43; O30; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| industrial concentration (L69) | growth rates (O40) |
| R&D spillovers (O36) | growth rates (O40) |
| higher concentration of firms in the north (R30) | innovation (O35) |
| innovation (O35) | growth rates (O40) |
| trade integration (F15) | industrial concentration (L69) |
| growth rates (O40) | relocation of firms (R30) |