KNOWLEDGE, ECONOMIC-GEOGRAPHY, AND GROWTH IN A 2-GROUP ISLAND ECONOMY

This paper proposes a two-group urban model with endogenous capital an d knowledge accumulation in an isolated island economy. The model exam ines the dynamic interdependence among knowledge utilization, creativi ty, transportation conditions, savings behavior, location choice, and residential pattern in a just two-group island economy. Although it is constructed with some strict assumptions, the model is quite general in the sense that the well-known models, such as the Solow-Swan model, the Kaldor-Pasinetti two-group model, and the Alonso model, can be co nsidered, from a structural point of view, as its special cases. The k nowledge accumulation in our model is based upon Arrow's learning-by-d oing model. It is proved that the system may have a unique or multiple equilibria and each equilibrium may be stable or unstable, depending upon knowledge utilization and creation characteristis of the two grou ps. We also examine the impact of changes in the population and knowle dge creation efficiency of two groups on long-run growth, wealth distr ibution, and residential structure.