Regional Economies, Innovation and Competitiveness in a System Dynamics Representation

The System Dynamics methodology is used in this article as unifying approach in order to show how a number of theories about the performance of territories developed in the past 20 years can integrate the one with the other; to demonstrate this, a model of local economy coherent with these schools is constructed and simulated. According to these theories, the ability to produce and use knowledge is at the centre of regional competitiveness in the advanced world; the model and the paper illustrate the elements of the local economic system and how they have to work coherently towards the continuous process of innovation, needed to be successful. The model also shows in a new framework how, due to the cumulative nature of this innovation process, it is possible to obtain equilibria with regional income differentiation, even in the presence of identical territories. When this is the case, structural policies, aiming to allow lagging regions to better innovate and/or imitate external knowledge, are appropriate.