Modelling regional economic growth : the role of human capital and innovation
This thesis investigates the role of human capital and innovation activity in the process of economic growth within a system of regions. It starts by reviewing existing theories of economic growth paying particular attention to the literature on “endogenous growth”, the large body of empirical literature addressing economic growth and that has investigated the “convergence issue”. A methodology based on the direct analysis of cross-sectional distributions of per capita income is then developed and applied to per capita income data for 122 European Union (EU) functionally defined regions over the period 1979-1990. The results show a clear tendency for some of the richest European regions to grow away from the others. The comparison of these results with those derived from a similar analysis for the commonly used administrative regions of the EU reveals some significant distortions imposed by adopting an administrative definition. A formal theoretical explanation of these results is then offered. In particular, it is argued that regional disparities in per capita income owe their existence to the pattern of specialisation between ‘knowledge creating’ and ‘knowledge applying’ regions. Specialisation is explained in terms of differences in the availability of useful knowledge at different locations. In the perfect foresight, stable equilibrium of the two-region model developed here, therefore, the region that specialises in innovation related activities (knowledge creating) enjoys a permanently higher level of per capita income. Moreover, it is shown that, on reasonable assumptions, a process of integration that reduces the cost of physical distance leads to faster growth in the long-run for the system as a whole, but at the expense of an increase in regional disparities. Finally, some predictions are derived and tested empirically. Using cross-sectional regressions, the fundamental determinants of the growth rate of a region are investigated. The results are supportive of the model, confirming the role played by the concentration of innovative activities and spatial spillovers of knowledge.