Abstract
We use a multi-region model and provide the first theoretical analysis of the effects of human capital use and a particular kind of innovative activity on economic growth. In each of the N heterogeneous regions in our model, consumers have constant relative risk aversion preferences, there are negative externalities in innovation, and there are three kinds of manufacturing activities involving the production of blueprints for inputs or machines, the inputs or machines themselves, and a single final good for consumption. Our analysis generates four salient findings. First, for each of the N regions, we define a balanced growth path equilibrium, we characterize the market clearing factor prices, and we determine the free entry condition in the R&D sector. Second, we show that without growth in human capital, there is no sustained economic growth in any of the N regions. Third, we show that human capital growth generates sustained economic growth in each of the N regions. Finally, when discussing the above three findings, we shed light on the spatial dimensions of economic growth in our multi-region aggregate economy.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
In the remainder of this paper, we shall use the words “input” and “machine” interchangeably.
A seminal paper on the incentives for and the effects of innovation is Arrow (1962).
Dietzenbacher and Los (2002) contend that negative externalities of R&D can be usefully studied using the concept of “forward multipliers” in the literature on input-output analysis. Even so, the reader should note that here is no overlap between their analysis and the analysis we conduct in this paper.
For concreteness, the reader may want to think of the aggregate economy as the European Union (EU), the regions as the various nations in the EU, and the spatial units as the provinces within these individual EU member nations. In an alternate interpretation, the aggregate economy would be the United States, the regions would correspond to the various US states, and the spatial units would denote the counties in the individual US states.
See Blanchard and Fisher (1989, pp. 43–45) for more on the properties of CRRA utility functions.
Since we are working with a model of endogenous technology, firms and individuals in region i must ultimately have a choice between different kinds of technologies and, in this regard, greater effort, investment, or R&D spending ought to lead to the invention of better technologies. These features tell us that there must exist a meta production function or a “production function over production functions” which tells us how new technologies are generated in region i as a function of the various inputs. Following Acemoglu (2009, p. 413), we refer to this meta production function as the “innovation possibilities frontier.”
See theorem 7.10 in Acemoglu (2009, p. 244) for more on the technical details of this procedure.
References
Acemoglu D (2009) Introduction to modern economic growth. Princeton University Press, Princeton, NJ
Aghion P, Howitt P (2009) The economics of growth. MIT Press, Cambridge, MA
Arrow KJ (1962) The economic implications of learning by doing. Rev Econ Stud 29:155–173
Banerjee B, Jarmuzek M (2010) Economic growth and regional disparities in the Slovak republic. Comp Econ Stud 52:279–403
Batabyal AA, Nijkamp P (2012a) A Schumpeterian model of entrepreneurship, innovation, and regional economic growth. Int Reg Sci Rev. doi:10.1177/0160017611429701
Batabyal AA, Nijkamp P (2012b) Human capital use, innovation, patent protection, and economic growth in multiple regions (July 20, 2012). RIT Economics Department Working Paper No. 12-06. Available at SSRN: http://ssrn.com/abstract=2114457
Baumol WJ (2010) The microtheory of innovative entrepreneurship. Princeton University Press, Princeton, NJ
Beladi H, Oladi R (2011) An elementary proposition on technical progress and non-traded goods. J Math Econ 47:68–71
Blanchard OJ, Fisher S (1989) Lectures on macroeconomics. MIT Press, Cambridge, MA
Brunow S, Hirte G (2009) The age pattern of human capital and regional productivity: a spatial econometric study on German regions. Pap Reg Sci 88:799–823
Capello R, Nijkamp P (eds) (2009) Handbook of regional growth and development theories. Edward Elgar, Cheltenham, UK
Dietzenbacher E, Los B (2002) Externalities of R&D expenditures. Econ Syst Res 14:407–425
Faggian A, McCann P (2009) Human capital and regional development. In: Capello R, Nijkamp P (eds) Handbook of regional growth and development theories. Edward Elgar, Cheltenham, UK, pp 133–151
Fischer MM, Nijkamp P (2009) Entrepreneurship and regional development. In: Capello R, Nijkamp P (eds) Handbook of regional growth and development theories. Edward Elgar, Cheltenham, UK, pp 182–198
Fleisher B, Li H, Qiang M (2010) Human capital, economic growth, and regional inequality in China. J Dev Econ 92:215–231
Florida R, Mellander C, Stolarick K (2008) Inside the black box of regional development—human capital, the creative class, and tolerance. J Econ Geogr 8:615–649
Grossman GM, Helpman E (1991) Innovation and growth in the global economy. MIT Press, Cambridge, MA
Hammond GW, Thompson EC (2010) Divergence and mobility in college attainment across U.S. labor market areas. Int Reg Sci Rev 33:397–420
Jones CI (1995) R&D based models of economic growth. J Polit Econ 103:759–784
Oladi R, Beladi H (2008) Is regionalism viable? A case for global free trade. Rev Int Econ 16:293–300
Peters M, Simsek A (2009) Solutions manual for introduction to modern economic growth. Princeton University Press, Princeton, NJ
Rivera-Batiz LA, Romer PM (1991) Economic integration and endogenous growth. Q J Econ 106:531–555
Romer PM (1990) Endogenous technological change. J Polit Econ 98:S71–S102
Roy U (1997) Economic growth with negative externalities in innovation. J Macroecon 19:155–173
Acknowledgements
For their helpful comments on a previous version of this paper, we thank the Co-Editor Luigi Orsenigo, an anonymous referee, and session participants in (i) the 2011 annual meeting of the North American Regional Science Council (NARSC) in Miami, Florida, (ii) the 2012 annual meeting of the Southern Regional Science Association (SRSA) in Charlotte, North Carolina, and (iii) the 2012 World Congress of the Regional Science Association International (RSAI) in Timisoara, Romania. In addition, Batabyal acknowledges financial support from the Gosnell endowment at RIT. The usual disclaimer applies.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Batabyal, A.A., Nijkamp, P. A multi-region model of economic growth with human capital and negative externalities in innovation. J Evol Econ 23, 909–924 (2013). https://doi.org/10.1007/s00191-012-0293-1
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00191-012-0293-1