What Drives Regional Growth

8/13/2019 What Drives Regional Growth

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What drives regional

growth?

The importance of the sectorial composition ofeconomic activity.

Diego Ocampo


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Introduction:

Why some regions grow so fast and soothers dont? Some countries are becoming more and more rich, while other

seem to be stagnated.

Inside the countries, some regions develop very fast and at thesame time a less fortunate group of regions just stares thesuccess of the other.

This facts clearly have consequences for

the inhabitants Problems with inequality=> Scope for

policy Necessity to understand the source of the problem.


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Among the many possible answers is the

composition of economic activity.

This presentation has the objective to

outline the theories and models that can

explain the different growth pattern across

regions. Particularlly the focus is on the relevance of sectoral composition

of the regions as a source of growth.

Find the opportunity to come up with a new idea


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The roots I: explaining growth

differences

Harrod-Domar model: unbalanced growht Growth is driven by saving rate, depresation rate and capital-

Leontief technology.

The neoclasical model of Solow: Growth is driven by (exogenous) technological progress.

Regional differences due to different

parameters.


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Technologycal growth is the responsable for outputgrowth.

What explains technology/TFP at a regional level?

At a regional level neighbors can have very different

outcomes, even if they have more in common thancountries.

Regions are different from countries:

Common institutional framework

Common currency,

Factor flows and trade are free: no tariffs or any other kindof barrier.

Shared institutions: taxes, laws, customs


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Theories of Regional

differences Ricardo

Comparative advantage.

The Growth Pole concept (Perroux 1955)

Dynamic industry capeble to pull the rest of the economy.

The Cumulative Causation theory (Myrdal 1957)

Self reinforcing circular process.

The CC theory is increasing returns to scale (Kaldor 1970)

Advantages from accumulation of knowledge, opportunities,

skills.


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Corner stones

Endogenous growth theory (Romer 1986)

No more diminishing returns

Accumulation of knowledge has positive externalities (public

good)

Probides and explanation for TFP.

Differences in stock of capital will make regions diverge

New economic geography/Core-periphery model

(Krugman 1991).

The transportation costs are the keey element of the model. The modern sector will agglomerate in one region.


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Corner stones II

The importance of externalities: Glaeser et al 1992.

Jacobs externalities prevail: diversity is the source of

externalities, hence for productivity growth.

From another perspective: density promps gainings inproductivity:

Ciccione and Hall (1996): externalities on productivity

depend on density.

Differences across regions depend on differences of density.


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Resent developments

Related variety: not all kind of diversity fosters

productivity growth.

Frenken et al 2007: proximity at the local level

Boschma and Iammarino 2009: industries inside a region have to

be close to each other to take advantage of new knowledge.

Martin and Ottaviano 2001

Two equal region model, A innovation sector, the cost of a new a

idea for firms is lower where are more firms producing ideasbecause of perfect competition.

Agglomeration will take place giving place to regional disparities.

Transport costs : key concept, krugman -style


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Resent developments III

Martin and Baldwin 2004

An innovation sector, no labor mobility but capital mobility is

what determines the structure of the economy.

Cost of innovation (spillovers) depend on wether are local (each

region has its own costs of innovation) or global (same cost inboth regions)

When spillover are localized Cost of innovate declines inversely

related to regions output of innovation sector.

Regions with the biggest share of innovation sector will

be the core and grow faster.


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Conclusions

There could be identify two approaches

Spillovers coming from industry diversity.

Glaeser et al 1992, Frenken et al 2007, Boshma and

Iammarino 2009.

Spillovers coming from density and agglomeration.

Ciccione and Hall 1996, Martin and Ottaviano 2001,

Baldwin and Martin 2004, Fujita andThisse 2003.


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Conclusions III

To tend a bridge I propose that there is a inverse

relation among diversity in sectorial composition as

driver of growth and size.

At some point the importance externalities vanishesand density takes its place. It is a matter of scale.

Also could be a matter of relative size between

regions.

What Drives Regional Growth

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