Spatial distance in a technology gap model

This paper analyses the effect of locally bounded knowledge spillovers on regional differences in growth. A model will be developed that allows spillovers to take place across regions. Certain conditions determine the amount of spillovers a region receives. By use of simulations (with randomised parameter constellations), it is possible to examine the general behaviour of the model. It is found that certain patterns in the gaps of the knowledge stocks appear repeatedly. The inclusion of geographical distance in a technology gap model leads to the observation that when differences (in parameters such as the learning capability or the exogenous rate of knowledge generation) increase across regions, the disparity in terms of GDP per capita between them decreases. This counterintuitive result is a direct effect from the inclusion of geographical distance in the model.