Marcos Sanso-Navarro, María Vera-Cabello (p)

Amit Batabyal

This paper incorporates time-dependence into a regional knowledge production function framework. Within this setup, the long-run dynamic behaviour of R&D and knowledge has been analysed in four European countries - France, Germany, Italy and Spain - using unit root tests and cointegration techniques. We find that the regional stock of knowledge is cointegrated with R&D employment and external knowledge. Nonetheless, knowledge spillovers play a more important role in the generation and accumulation of new ideas. This suggests that innovation policies should aim at enhancing regional absorptive capacity through improvements in education and training.

Amit Batabyal (p), Seung Yoo

María Vera-Cabello

We analyze the nature of research and development (R&D) that leads to Schumpeterian economic growth in a region that is creative in the sense of Richard Florida. The engine of economic growth in our creative region is process innovations that lead to quality improvements in the machines that are used to produce a final consumption good. We accomplish two main tasks. First, we show that in the so called balanced growth path (BGP) equilibrium, growth is unbalanced because R&D takes place only on the machine line with the highest quality. Second, we show how a policymaker can alter the basic model so that the resulting equilibrium has balanced growth in the sense that there is R&D across all the different machine lines.