Cognitive capital and islands of innovation:the Lucas growth model from a regional perspective

Knowledge triggers regional growth. Evidence suggests that skilled labour force concentrates in islands of innovation, providing an advantage for innovative regions and a challenge for lagging ones. We present a growth model explaining the effect of human capital on regional wealth. Estimates are based on EVS and EUROSTAT regional data. The externality driving growth in the model is cognitive capital. Empirical tests show that a higher endowment of cognitive capital generates increasing returns to knowledge, favouring the emergence of islands of innovation; also, regions with a high endowment of cognitive capital attract knowledge spillovers from neighbours.