TFP, R&D AND SEMI ENDOGENOUS GROWTH IN RHOMOLO

This paper describes the semi-endogenous growth approach used in the dynamic spatial general equilibrium model RHOMOLO. We illustrate here how regional R&D expenditures can be used to explain Total Factor Productivity differentials across regions and how shocks to the former end up affecting regional economic performances and economic convergence. As to do so, the current contribution provides econometric estimates of the relationship between regional productivity and R&D intensity by applying the technology catch-up model proposed by Benhabib and Spiegel (2005) to the EU-regional context. We then use the estimated elasticities within the DSCGE framework while also building a simple simulation example to illustrate the potential of the model in capturing the heterogeneous income effects produced a shock to regional R&D expenditures.