Spatial Pattern Formation with Capital and Knowledge

Abstract

The previous chapter developed models based on the main ideas in the Alonso model and the one-sector neoclassical growth theory. We assumed that knowledge is exogenously given. However, when we study spatial economic evolution, it is too strict to assume knowledge as a given parameter in the dynamic process. Knowledge creation and utilization is the driving force of modern economic development. A main issue in economics is concerned with dynamic interactions between economic growth, knowledge creation and utilization. The literature on economic development has recently been centered on identifying different aspects of dynamic interactions between growth and knowledge accumulation. One of the first seminal attempts to render technical progress endogenous in growth models was initiated by Arrow (1962) emphasizing one aspect of knowledge accumulation — learning by doing. Uzawa (1965) introduced a sector specifying in creating knowledge into growth theory (see also, Zhang, 1990, 1999, Aghion and Howitt, 1992, 1998). The knowledge sector utilizes labor and the existing stock of knowledge to produce new knowledge, which enhances productivity of the production sector. Another approach was taken by, for instance, Kennedy (1964), Weisäcker (1966), Drandakis and Phelps (1966), and Samuelson (1965), who took account of the assumption of “inducement through the factor prices”. Schultz (1981) emphasized the incentive effects of policy on investment in human capital. There are many other studies on endogenous technical progresses (e.g., Robson, 1980, Sato and Tsutsui, 1984, Nelson and Winter, 1982, Dosi, Pavitt and Soete, 1990, Johansson and Karlsson, 1990, Grossman and Helpman, 1991). In Romer (1986), knowledge is taken as an input in the production function and competitive equilibrium is rendered consistent with increasing aggregate returns owing to externalities. It is assumed that knowledge displays increasing marginal productivity but new knowledge is produced by investment in research, which exhibits diminishing returns. Various other issues related to innovation, diffusion of technology and behavior of economic agents under various institutions have been discussed in the literature. There are also many other models emphasizing different aspects, such as education, trade, R&D policies, entrepreneurship, division of labor, learning through trading, brain drain, economic geography, of dynamic interactions among economic structure, development and knowledge (e.g., Dollar, 1986, Krugman, 1991, Stokey, 1991, Zhang, 1991a, 1991c, 1997b, Barro and Sal-i- Martin, 1995). It may be argued that there is a theoretical limitation in those works.KeywordsService SectorWage RateCapital StockKnowledge CreationProduction SectorThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.