DP1523 Growing Locations: Industry Location in a Model of Endogenous Growth
Author(s): | Philippe Martin, Gianmarco Ottaviano |
Publication Date: | November 1996 |
Keyword(s): | Endogenous Growth, New Geography, R&D |
JEL(s): | F43, O30, R12 |
Programme Areas: | International Macroeconomics, International Trade and Regional Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=1523 |
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.