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A Two-Sector Model of Creative Capital Driven Regional Economic Growth

Batabyal, Amitrajeet and Nijkamp, Peter (2017): A Two-Sector Model of Creative Capital Driven Regional Economic Growth.

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Abstract

We study aspects of economic growth in a region that is creative in the sense of Richard Florida. We model creativity by supposing that the region under study has two sectors. The first sector uses physical capital {K(t)} and trained workers {A(t)W(t)} to produce creative capital {R(t)}. The second sector uses physical and creative capital to produce a final consumption good {Q(t)}. In this setting, we accomplish four tasks. First, we derive the equations of motion for physical capital per trained worker (k) and creative capital per trained worker (r). Second, we find combinations of k and r for which k ̇=r ̇=0. Third, we investigate whether the economy of our creative region has a balanced growth path (BGP). Finally, assuming that our region is initially on a BGP, we study the impact of a permanent increase in the savings rate (s) on the trajectory of output per worker.

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