Computable Regional Dynamic Models with Endogenous Technical Change

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The conventional input-output models developed by Leontief assume the fixed input-output ratios which imply zero elasticity of substitution between inputs in the production function. Morishima introduced variable input-output models in which the input ratios are determined by the optimizing behavior of producers. Though he paved a way to deal with the changes of input-output coefficients over time, the major forces to change coefficients are the relative changes in prices of goods and in wage rates. The existence of ex ante technologies is presumed, among which ex post technology is chosen given the set of relative prices of goods. There are no rooms to envisage technological progress, which may alter ex ante technology itself. The aim of this study is to proposes a computable dynamic input-output model to examine interactions between knowledge accumulation and economic development with endogenous technical changes. The model explicitly introduces new sectors called "knowledge sectors" into the traditional dynamic input-output economic system. It is assumed that the growth of knowledge is the main source of technical change. In order to increase knowledge we need inputs and investments just as we do to produce material capital. This study is organized as follows. This study commences with the description of the basic ideas of knowledge and knowledge production. It also describes firms' long-term decisions on knowledge and physical investment by applying adjustment-cost approach. Our study contains the empirical specification of the firms' micro-behavior and an input-output description of multi sectorial interactions between outputs and investment, knowledge, and factor inputs. We also try to integrate the input-output description to a dynamic input-output model with endogenous technical changes and discusses the computability of the model.