Location/allocation of regional growth

This chapter provides a brief review of different theoretical approaches and engages in a critical discussion of how regional growth theories contribute to our understanding of the spatial distribution of economic activities and the long-term growth processes of the regional economy. We contrast the neoclassical model of regional growth, endogenous growth theory and new economic geography. The latter two theories deviate from traditional neoclassical thinking in fundamental ways, suggesting that externalities should be seen as an important element of the economy. The chapter shows that the introduction of externalities leads to a different view of the economy, drawing attention to phenomena that are unknown to the neoclassical model, namely, multiple equilibria, path dependence and lock-in, sensitivity to initial conditions, small disturbances and indirect effects, sensitivity to marginal changes in parameters, chaotic behaviour and convergence toward strange attractors.