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INTERREGIONAL KNOWLEDGE SPILLOVERS AND OCCUPATIONAL CHOICE IN A MODEL OF FREE TRADE AND ENDOGENOUS GROWTH

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ABSTRACT. 

A two region model of horizontal innovation with free trade and occupational choice is used to examine the spatial patterns of innovation and manufacturing industry in interior and core-periphery long-run equilibria. The inclusion of skill heterogeneity among workers creates a tension between stabilizing productivity effects that coincide with reallocations of workers across industries, and destabilizing productivity effects that arise with localized stocks of knowledge capital. We find that while core-periphery equilibria are always saddlepath stable, interior equilibria are saddlepath stable when knowledge spillovers exceed a threshold level but are unstable otherwise. In addition, incorporating skill heterogeneity into the model allows for interior equilibria with asymmetric shares for innovation and industry.
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Document Type: Research Article

Affiliations: Graduate School of Economics, Kobe University, 2-1 Rokko-dai, Nada, Kobe, Hyogo 657-8501, Japan., Email: [email protected]

Publication date: 2009-12-01

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