Studies in Economics and Finance

Purpose – The purpose of the paper is to present an integrated approach concerning intertemporal choices and the location of economic activity under a simple endogenous growth model. The idea is that time analysis concerning the choices about present and future consumption and the choices on the allocation of scientific resources should be combined with a space analysis regarding the dissemination of economic activity through geographical locations.

Design/methodology/approach – Two optimal control problems are considered. These relate to a standard utility maximization set-up, in which spatial considerations are incorporated, and to a problem of allocation of scientific/technological resources. Steady states and transitional dynamics are addressed.

Findings – It was found that the long-run steady state does not have to be a state of unchangeable geography – consumption, production conditions and technological progress determine not only long-term growth but also the long-term tendency for the economy to geographically concentrate or disperse.

Research limitations/implications – In its essence, the model is just a conventional Ramsey growth model, sophisticated in order to include endogenous location decisions and endogenous technology choices. Further insights can be gained by readdressing the model (e.g. by assuming a monopolistic competition environment instead of a purely competitive set-up).

Originality/value – The determinants of growth are, on the one hand, the decisions about how to allocate technological resources and, on the other hand, the strength with which productive activities can agglomerate in order to generate increasing returns to scale.