873 publications from this institution
This article presents a theoretical growth model that accounts for technological interdependence among regions in a Mankiw-Romer-Weil world. The reasoning behind the theoretical work is that technological ideas cannot be fully appropriated by investors and these ideas may diffuse and increase the productivity of other firms. We link the diffusion of ideas to spatial proximity and allow ideas to flow to nearby regional economies. Through the magic of solving for the reduced form of the theoretical model and the magic of spatial autoregressive processes, the simple dependence on a small number of neighboring regions leads to a reduced form theoretical model and an associated empirical model where changes in a single region can potentially impact all other regions. This implies that conventional regression interpretations of the parameter estimates would be wrong. The proper way to interpret the model has to rely on matrices of partial derivatives of the dependent variable with respect to changes in the Mankiw-Romer-Weil variables, using scalar summary measures for reporting the estimates of the marginal impacts from the model. The summary impact measure estimates indicate that technological interdependence among the European regions works through physical rather than human capital externalities.
. This paper presents a theoretical neoclassical growth model with two kinds of capital, and technological interdependence among regions. Technological interdependence is assumed to operate through disembodied knowledge diffusion between technologically similar regions. The transition from theory to econometrics yields a reduced-form empirical model that in spatial econometrics literature is known as spatial Durbin model. Technological dependence between regions is formulated by a connectivity matrix that measures closeness of regions in a technological space spanned by 120 distinct technological fields. We use a system of 158 regions across 14 European countries over the period from 1995 to 2004 to empirically test the model. The paper illustrates the importance of an impact-based model interpretation, in terms of the LeSage and Pace (2009) approach, to correctly quantify the magnitude of spillover effects, in order to avoid incorrect inferences about the presence or absence of significant capital externalities and the role technological interdependence plays in regional growth processes in Europe.