INDUSTRIAL-CENTERS AND REGIONAL GROWTH IN THE PRESENCE OF LOCAL INPUTS

A large proportion of regional production takes place in nontraded goo ds and services. In addition, significant productivity increases can b e observed in some segments of this sector. Starting from these two em pirical observations we construct a model of growth in a two-region se tting with factor mobility. The growth process is based on endogenous technological change in the nontraded input sector, whose output serve s as an input in the production of one of the two final goods, the so- called industrial good. We consider two extreme cases, one with locall y limited, the other with interregional knowledge spillovers. Conditio ns are established under which interior solutions with production of l ocal inputs and steady-state growth in both regions result, and others under which we find a core-periphery pattern with growth concentrated in one region only. The stability of the equilibria is discussed by c onsidering the transition processes. Finally, it is shown that catchin g-up as well as leapfrogging may occur, if new technologies become ava ilable.