Richard Florida’s Creative Capital in a Trading Regional….pdfVIP

Richard Florida’s Creative Capital in a Trading Regional Economy: A Theoretical Investigation1 by Amitrajeet A. Batabyal2 and Peter Nijkamp3 1 We thank Roger R. Stough and the participants in an international workshop on “Human Capital, Social Capital, and Creative Capital as Sources of Regional Growth” in Free University, Amsterdam, June 30-July 1, 2008, for their comments on a previous version of this paper. In addition, Batabyal acknowledges financial support from the Gosnell endowment at RIT. The usual disclaimer applies. 2 Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY 14623-5604, USA. Internet aabgsh@ 3 Department of Spatial Economics, Free University, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands. Internet pnijkamp@feweb.vu.nl 1 Electronic copy available at: /abstract=1177603 Richard Florida’s Creative Capital in a Trading Regional Economy: A Theoretical Investigation Abstract We first construct a theoretical model of a regional economy with two sectors. One sector uses physical and creative capital—in the sense of Richard Florida (2002)—to produce a knowledge good that is traded. The other sector uses physical and social capital to produce a good that is not traded. Second, we provide the first formal analysis of the creative capital accumulation decision faced by individuals in this regional economy and we compute the optimal length of time during which creative capital is accumulated. Next, we determine the relative return to creative capital and we use this return to conduct comparative statics exercises with our model’s four parameters. Finally, we show that for a given interest rate, the relative price of the nontraded good is higher in regional economies where more creative capital is accumu