Growing locations: Industry location in a model of endogenous growth

Philippe Martin and Gianmarco Ottaviano

Chapter 1 in Firms and Workers in a Globalized World:Larger Markets, Tougher Competition, 2021, pp 3-24 from World Scientific Publishing Co. Pte. Ltd.

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 foreign direct investment to the South (the location with a low initial wealth). With local spillovers in R&D, this activity is agglomerated in the North and the rate of innovation increases with the concentration of firms in the North. This in turn implies that a decrease of transaction costs, through its impact on economic geography, will increase the growth rate. We show that industrial concentration can be beneficial for both regions if its impact on the rate of innovation is large enough to compensate the South for the loss of industry. This will be the case only for low enough transaction costs and high enough spillovers.

Keywords: Allocative Efficiency; Immigration; Inequality; Innovation; International Competition; International Trade; Macroeconomic Effects of Globalization; New Economic Geography; New Trade Theory; Offshoring; Regional Decline; Regional Growth; Territories; Waves of Globalization; Winners and Losers from Globalization; Borders; Creative Destruction; Cultural Diversity; Economic Geography; Economic Growth; Firm Heterogeneity; Firms and Workers; Globalization (search for similar items in EconPapers)
JEL-codes: F02 F6 F61 F62 (search for similar items in EconPapers)
Date: 2021
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Related works:
Journal Article: Growing locations: Industry location in a model of endogenous growth (1999)
Working Paper: Growing Locations: Industry Location in a Model of Endogenous Growth (1999)
Working Paper: Growing Locations: Industry Location in a Model of Endogenous Growth (1996)
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