Macroeconomic Modelling of R&D and Innovation Policies: An application of RHOMOLO and QUEST

This paper presents and applies a dynamic spatial computable general equilibrium model - RHOMOLO - to assess the impact of research, technological development and innovation policies in the EU. RHOMOLO is parameterised by econometrically estimating the relationship between regional productivity and R&D intensity by applying the technology catch-up model proposed by Benhabib and Spiegel (2005) to the EU-regional context. Our simulation results suggest that a dynamic spatial computable general equilibrium approach is particularly useful for handling spillovers of investments in the innovation capacity of the regions, both of which cannot be captured by models in which the spatial structure is not present. The paper shows the strengths and limitations of the approach, and the advantages of aligning the spatially and sectorally disaggregated models with more aggregated dynamic macro models.JRC.J.2-Knowledge for Growt