Impact Analysis of Regional Knowledge Subsidy: a CGE Approach

In this paper we present a computable general equilibrium model for the region of Sardinia for the purpose of evaluating the capacity of R&D policies to affect the long run rate of growth. The model incorporates induced technical change and allow for external knowledge spillovers. We find that the cost of R&D policies may change according to the wage setting prevailing into the region. Furthermore, the capacity of such a policy to generate knowledge spillovers from the international and interregional trade are quite modest. Indeed, the capacity of the regional system to internalize the technological level embody in the imported good is partially offset by an increase in internal efficiency lowering the share of import but increasing competitiveness.