Working Paper: CEPR ID: DP3135
Authors: Masahisa Fujita; Jacques-François Thisse
Abstract: This Paper proposes a two-region model of endogenous growth, which is a natural combination of a core-periphery model a la Krugman and of a model of endogenous growth a la Grossman/Helpman/Romer. Specifically, we add to the core-periphery model an R&D sector that uses skilled labour to create new varieties for the modern sector, while forward-looking migration behaviour is introduced. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis suggests that the presence of such a sector reinforces the tendency toward agglomeration, and supports the idea that the additional growth spurred by agglomeration may lead to a Pareto-dominant outcome such that when the economy moves from dispersion to agglomeration, innovation follows a much faster pace. As a consequence, even those who stay put in the periphery are better off than under dispersion, provided that the growth effect triggered by the agglomeration is strong enough.
Keywords: agglomeration; endogenous growth; patent; regional growth
JEL Codes: F12; O40; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Geographical agglomeration (R12) | Economic growth (O49) |
| Geographical agglomeration (R12) | Innovation rates in the R&D sector (O32) |
| Innovation rates in the R&D sector (O32) | Economic growth (O49) |
| Geographical agglomeration (R12) | Pareto-superior outcomes (D69) |
| Spatial distribution of skilled workers (J69) | Economic growth (O49) |