Physical Capital Mobility, the Educational and Quality Aspects of Creative Capital, and Output Production

Abstract

We analyze two theoretical models of the connections between physical capital mobility, education in and the quality of creative capital, and the production of output in a region that is creative in the sense of Richard Florida. Our first model focuses on a single region which produces a knowledge good with perfectly mobile physical capital. We trace through the effect that education has in converting raw creative capital into acquired creative capital and then study how physical capital mobility affects the impact of the change in education on the output of the knowledge good. Our second model is similar to the first one but the focus now is on two creative regions and on the quality of creative capital. We show how to decompose the difference in the logarithm of the output of the knowledge good per raw creative capital unit between the two regions into the contributions of education and all other factors.