The Impact of Neutral and Non-Neutral Productivity Growth on Creative Capital in a Trading Regional Economy

Abstract

We analyze a two-sector model of a trading creative regional economy (TCRE) of the sort studied by Florida. Our analysis focuses on two cases. The first (second) case concerns the impact of faster neutral (non-neutral) productivity growth in the tradable sector on the employment of creative people in each of a TCRE’s two sectors. In both cases, the sign of the percent change in the steady state use of creative capital in the non-tradable sector is ambiguous. This indicates whether or not faster productivity growth in the tradable sector results in the departure of creative people from this sector to the non-tradable sector is independent of whether this faster productivity growth is neutral or non-neutral. In addition, because the effects of faster productivity growth in the tradable sector are not necessarily innocuous, a potential role exists for activist policy designed to countermand the possibly negative effects of faster productivity growth on either the tradable or the non-tradable sector. This finding of possible “uneven development” is consistent with Florida’s view that TCREs can give rise to externalities such as uneven regional development.