Economic Integration Geography and Growth: A theoritical Analysis

Abstract

Economic integration plays an important role in trade, in knowledge diffusion and in economic growth. However, this role depends on the geographical distance between countries. The purpose of this paper is to study the geographical distance effects on the advantages of economic integration. To do so we extend the Romer and Rivera Batiz (1991) model by adding the distance between countries. Our main findings are: in the presence of the geographical distance effects (i) the growth rate does not double compared to autarky as in the Romer and Rivera Batiz model, ii) the share of human capital allocated to research sectors increases and (iii) the growth rate in centralized equilibrium is lower than that in decentralized equilibrium.

Keywords: Economic integration; Geographical distance; Spillovers; Economic growth.

JEL Classification Codes: F15 , F43, O30