Knowledge Creation as a Square Dance on the Hilbert Cube

This paper presents a micro-model of knowledge creation and transfer in a small group of people. Our model incorporates two key aspects of the cooperative process of knowledge creation: (i) heterogeneity of people in their state of knowledge is essential for successful cooperation in the joint creation of new ideas, while (ii) the very process of cooperative knowledge creation a¤ects the heterogeneity of people through the accumulation of knowledge in common. The model features myopic agents in a pure externality model of interaction. In the two person case, we show that the equilibrium process tends to result in the accumulation of too much knowledge in common compared to the most productive state. Unlike the two-person case, in the four person case we show that the equilibrium process of knowledge creation may converge to the most productive state. Equilibrium paths are found analytically, and they are a discontinuous function of initial heterogeneity.

FDI and investment barriers in developing economies

Does investment liberalization in developing economies affect FDI decisions differently across individual firms? To address this question, we simulate the response of individual firms to reductions in investment costs across developing economies. We explore two policy experiments: elimination of setup-procedure requirements for foreign investors and a reduction in corporate tax rates on foreign-owned multinationals. We find that a relaxing of discriminatory foreign investment procedures induces middle productive firms to increase their entry and production in developing economies substantially, but the most productive firms to expand moderately. Multinationals expand their entry and production in developing economies more substantially following a decline in entry barriers than following a decrease in corporate tax rates.

Agglomeration Economies in Japan: Technical Efficiency, Growth and Unemployment

This paper examines if the effects of agglomeration economies get manifested in technical efficiency and generate faster economic growth and higher (lower) levels of employment (unemployment). Using the prefecture level data for each of the two-digit groups of industries in Japan, the paper estimates region-specific technical efficiency index based on the stochastic frontier production function framework. The results of the factor analysis show that in most of the industry-groups (with a few exceptions) efficiency has a positive association with external scale variable(s). Though the relationship is not seen to be very strong, it would be equally erroneous to ignore the effect of agglomeration economies on efficiency. In the case of some of the light goods industries the agglomeration effect is relatively stronger. Further, economic growth varies positively with external scale variable(s) and unemployment rate tends to fall with respect to growth and concentration. All this tends to suggest that measures against industrial concentration may be counter-productive, particularly in the context of globalisation when countries are in dire need of raising productivity.