Positive and Negative Externalities in Innovation, Trade, and Regional Economic Growth

RIT Economics Department Working Paper No. 13-10

34 Pages Posted: 27 Aug 2013

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology (RIT) - Department of Economics

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2013

Abstract

We analyze the interactions between positive and negative externalities in innovation and trade for economic growth in a region when this region is part of an aggregate economy consisting of two regions. In both regions consumers have constant relative risk aversion preferences, there is human capital use, and there are three kinds of manufacturing activities involving the production of blueprints for inputs or machines, the inputs or machines themselves, and a single final good for consumption. We study two cases. In the first case, there is no growth in the human capital stock but innovative activities give rise to positive externalities or knowledge spillovers in two ways. In this setting, we study whether and under what circumstances opening a region to trade results in an increase in this region’s equilibrium growth rate. In the second case, there is growth in the human capital stock but there are negative externalities in innovation. In this scenario, we show that opening a region to trade leads to more innovation but to no change in its long run growth rate.

Keywords: Innovation, Negative Externality, Positive Externality, Regional Economic Growth, Trade

JEL Classification: R11, O31, O33

Suggested Citation

Batabyal, Amitrajeet A. and Nijkamp, Peter, Positive and Negative Externalities in Innovation, Trade, and Regional Economic Growth (August 26, 2013). RIT Economics Department Working Paper No. 13-10, Available at SSRN: https://ssrn.com/abstract=2316425 or http://dx.doi.org/10.2139/ssrn.2316425

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology (RIT) - Department of Economics ( email )

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Rochester, NY 14623-5604
United States
585-475-2805 (Phone)
585-475-5777 (Fax)

HOME PAGE: http://people.rit.edu/aabgsh

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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