Innovation through intra and inter-regional interaction in economic geography

Jos\'e M. Gaspar and Minoru Osawa

Papers from arXiv.org

Abstract: We develop a two-region economic geography model with vertical innovations that improve the quality of manufactured varieties produced in each region. The chance of innovation depends on the \emph{related variety}, i.e. the importance of interaction between researchers within the same region rather than across different regions. As economic integration increases from a low level, a higher related variety is associated with more agglomerated spatial configurations. However, if the interaction with foreign scientists is relatively more important for innovation, economic activities may (completely) re-disperse after an initial phase of agglomeration due to the increase in the relative importance of a higher chance of innovation in the less industrialized region. This non-monotonic relationship between economic integration and spatial imbalances may exhibit very diverse qualitative properties, not yet described in the literature.

Date: 2022-12, Revised 2024-04
New Economics Papers: this item is included in nep-cse, nep-geo, nep-tid, nep-tre and nep-ure
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