ABSTRACT
This chapter discusses regional growth theories and explains changes in a key set of macroeconomic indicators, including output, employment, income, investment, savings, wages, and interest rates. The neoclassical perspective is the dominant framework for regional growth theory. Neoclassical growth theory is principally focused on the supply side, and the nature and magnitude of demand for goods and services is typically ignored. Post-Keynesian theories, with their emphasis on insufficient demand for the output of regional industries, have had a more limited though still important influence on regional development thinking. The simplest neoclassical regional growth model, often referred to as the Solow model, incorporates the unique features of subnational geographic units. In contrast to neoclassical regional growth theory, post-Keynesian models of regional growth emphasize the disequilibrium nature of the growth process, the dependence of local fortunes on the strength of effective demand for regional exports, and the tendency for growth trends to become cumulative either in the positive or negative direction.
