On the predictability of knowledge formation: The tortuous link between regional specialization, trade, and development

This paper examines the relation between industrial mix, trade, and regiona l productivity growth. For this purpose, a dynamic model of the open econom y with diversified sectoral knowledge formation and incomplete interregiona l knowledge diffusion is constructed. The theoretical framework is first us ed to show the consequences of increasing globalization on regional growth. It is then applied to German regional data in order to investigate whether there is evidence of generally specified patterns of knowledge formation. It emerges that some causal relationships are robust for the case of German regions but cannot be exploited by economic policy in general.