Abstract
This chapter presents a spatially augmented growth model that includes technological interdependence among regions to consider locational and neighbourhood effects on growth. The role of space, which can be defined in several ways, plays an important role in economic growth processes. The different types of tests allow the authors to determine the spatial dependence in regional data and specify an appropriate model. The characteristics of neighbours may stimulate or hamper the economic growth rate of a country. The spillover effects of a country are a substantial issue for a regional perspective in the economic growth process. The economic growth of a country is affected by the performance of growth rate of its neighbours. The economic growth rates depend on both region and neighbouring region characteristics, the weight matrix, which shows the spatial connectivity structure of regions and the strength of spatial dependence based on model specification.
TopDerivation Of Growth Equation And Spatial Externalities
This section starts with the derivation of growth equation that has been used in cross-country regressions to test for convergence across countries and then extend it to allow for spatial interdependence across countries. The standard neo-classical growth model is based on a constant return to scal1e production technology combined with a constant saving rate and constant growth rates of technological and population growth. Following Mankiw et al. (1992) (hereinafter MRW) that interprets in terms of country-specific data, and assumes the existence of a Cobb-Douglas production function:
0<𝛼<1(1) where Yit is the level of country-specific output (Real GDP), Kit denotes the level of capital and Lit is labor employed in the country and Ait is the country-specific level of labor-augmenting technological progress (total factor productivity). Assume that technology and labor grow at the constant rates gi and ni respectively, so that
Key Terms in this Chapter
Spatial: Having a character of space, which relates to the position, area, and size of things.
Growth: An increase in the size or the importance of something.
Interdependence: Mutually reliant or depending on each other.
Interaction: Reciprocal action or influence, where two or more people or things communicate or react each another.
Spillover: The effects of an activity have spread further.
Impact: The force of impression or influence of one thing on another.
Weighting: A level of importance given to something compared to other things.
Externality: Excessive attention to external or outward features.
Neighbourhood: A district where people live, the immediate environment; surroundings.