Abstract
We consider a semi endogenous R & D growth model with international trade, foot-loose capital, and local and international knowledge spillovers in a closed economy and also international knowledge spillovers in an open economy. We show that by opening trade two regions diverge (converge) with (not) sufficiently high intertemporal knowledge spillover in the R & D sector and elasticity of substitution between modern goods, and not sufficiently high (sufficiently high) richer country A’s share of firm owned.
Highlights
The effect of opening trade on regional inequality is an important theme because the world economy has been experiencing an opening of trade, and it affects on regional inequality has been changing along with the ongoing trade opening, such as the rapid integration of China into the world economy since 1978
Martin and Ottaviano [7] show that the growth rate does depend neither on the location of firms nor on the level of iceberg costs in a knowledge driven endogenous growth with scale effectsinternational R & D spillover, footloose capital, and international trade
We investigate the effect of opening up a closed economy to a restricted open economy on regional inequality as in Minniti and Parello [9] with autarkic local knowledge spillover and international knowledge spillover in an open economy
Summary
The effect of opening trade on regional inequality is an important theme because the world economy has been experiencing an opening of trade, and it affects on regional inequality has been changing along with the ongoing trade opening, such as the rapid integration of China into the world economy since 1978. Martin and Ottaviano [7] show that the growth rate does depend neither on the location of firms nor on the level of iceberg costs in a knowledge driven endogenous growth with scale effectsinternational R & D spillover, footloose capital, and international trade. Minniti and Parello [9] find that further exposure to trade has no impact on the growth rate and regional inequality in a two country semi-endogenous growth model2 The former comes from diminishing returns to knowledge in the R & D sector. We investigate the effect of opening up a closed economy to a restricted open economy on regional inequality as in Minniti and Parello [9] with autarkic local knowledge spillover and international knowledge spillover in an open economy.
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