UNU-MERIT Working Papers Series

Endogenous Economic Growth through Connectivity

Adriaan van Zon & Evans Mupela #2010-001

In this paper we show the benefits of regional connectivity and specialization to growth. Starting with one region we show how welfare measured by utility per head increases as the number of connected regions increase. We assume a common connectivity infrastructure implemented by satellite, through which the ‘Great Connector’ (GC) is able to add new regions to the pool of connected regions by taking a tax form those already connected. We find that increasing production costs leads to faster transitions towards the steady state whereas increasing transportation and communication costs tends to lengthen the transition. The results point to reductions in transportation and communication costs in particular as a suitable vehicle to speed up growth. The results also show a strong positive effect of reductions in the cost of making new connections. This has a significant impact on both the steady state growth rate and on transitional growth, while significantly reducing the transition period.

Key Words: Connectivity, Satellite, Growth, Specialization, Network

JEL Classification: O25, 041, O43, O47, F15, F43

UNU-MERIT Working Papers ISSN 1871-9872

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