A Multi-Region Model of Economic Growth with Human Capital and Negative Externalities in Innovation

We use a multi-region model and provide the first theoretical analysis of the effects of human capital use and a particular kind of innovative activity on economic growth. In each of the N heterogeneous regions in our model, consumers have constant relative risk aversion preferences, there are negative externalities in innovation, and there are three kinds of manufacturing activities involving the production of blueprints for inputs or machines, the inputs or machines themselves, and a single final good for consumption. Our analysis generates four salient findings. First, for each of the N regions, we define a balanced growth path equilibrium, we characterize the market clearing factor prices, and we determine the free entry condition in the R&D sector. Second, we show that without growth in human capital, there is no sustained economic growth in any of the N regions. Third, we show that human capital growth generates sustained economic growth in each of the N regions. Finally, when discussing the above three findings, we shed light on the spatial dimensions of economic growth in our multi-region aggregate economy. © 2012 Springer-Verlag.