Spatial externalities and growth in a Mankiw-Romer-Weil world: Theory and evidence

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This paper 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 for 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 neighbouring
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 European regions works through physical rather than human capital externalities.
Original languageEnglish
Pages (from-to)45 - 61
JournalInternational Regional Science Review
Issue number1
Publication statusPublished - 2018

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 507026 Economic geography
  • 507003 Geoinformatics

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