The Economic Geography of Innovation

46 Pages Posted: 26 Nov 2018

See all articles by Peter H. Egger

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Nicole Loumeau

ETH Zurich

Date Written: November 2018

Abstract

This paper outlines a quantitative global multi-region model to assess the importance of country-level investment incentives towards innovation at the level of 5,633 regions of heterogeneous size. While incentives vary across countries (and time), the responses are largely heterogeneous across regions within as well as across countries. The reason for this heterogeneity roots in average technology differences -- in terms of the production of both output and innovation -- as well as in the geography (location) and amenities across regions. The model and quantitative analysis take the tradability of output as well as the mobility of people across regions into account. In the counterfactual equilibrium analysis we focus on the effects of R&D-investment incentives on three key variables -- place-specific employment, productivity, and welfare -- in a scenario where investment incentives towards innovation are abandoned. We find that the use of policy instruments which are designed to stimulate private R&D are globally beneficial in terms of productivity and welfare. In particular, low-amenity, peripheral places, and ones where patenting is relatively less common than elsewhere benefit more strongly than others, which implies that the studied nation-wide investment incentives also work as place-based policies. According to the quantification, about one-tenth of the long-run growth rate of real GDP on the globe can be attributed to the use of R&D investment incentives as used in the year 2005 alone.

Keywords: Economic Geography, Innovation, labor mobility, Quantitative general equilibrium, structural estimation, Trade

JEL Classification: C68, F13, F14, O31, R11

Suggested Citation

Egger, Peter H. and Loumeau, Nicole, The Economic Geography of Innovation (November 2018). CEPR Discussion Paper No. DP13338. Available at SSRN: https://ssrn.com/abstract=3290531

Peter H. Egger (Contact Author)

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

Poschingerstr. 5
Munich, DE-81679
Germany
+49 0 89 9224 1238 (Phone)
+49 0 89 985369 (Fax)

HOME PAGE: http://www.cesifo-group.de/portal/page?_pageid=36,425628&_dad=portal&_schema=PORTAL

Ludwig-Maximilians University of Munich

Schackstr. 4
Munich, 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Poschinger Str. 5
Munich, DE-81679
Germany

Nicole Loumeau

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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