Spatial Externalities and Growth in a Mankiw-Romer-Weil World: Theory and Evidence. (January 2018)

• Record Type: Journal Article
• Authors: Fischer, Manfred M.
• Other Names: Kourtit Karima guest-editor.; Nijkamp Peter guest-editor.; Stough Roger R. guest-editor.
• Is Part Of: International regional science review. Volume 41:Number 1(2018)
• Page Start: 45
• Page End: 61
• Publication Date: 2018-01
• Subjects: spatial economics -- spatial econometrics -- growth empirics -- human capital externalities -- physical capital externalities -- technological interdependence -- European regions; Regional economics -- Periodicals; Regional planning -- Periodicals; Regionalism -- Periodicals; 338.9
• DOI: 10.1177/0160017616628602
• Languages: English
• ISSNs: 1552-6925

Abstract

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.