Goods Production, Learning by Doing, and Growth in a Region with Creative and Physical Capital

We study the effects of learning by doing resulting from the production of a final good on economic growth in a region that is creative in the sense of Richard Florida. Firms in this region use creative and physical capital to produce output. We model learning by doing formally and our analysis of the working of this creative region leads to four results. First, we derive analytic expressions for the growth rates of physical capital and technology. Second, we draw phase diagrams and show that in the steady state, the preceding two growth rates must be equal. Third, we show that the economy of our creative region converges to a balanced growth path (BGP) in which the growth rates of physical capital, technology, and the output of the final good are identical. Finally, we investigate the impact that an increase in the savings rate has on the economic growth of our creative region in the long run.