ABSTRACT

Two main theoretical approaches are utilized to examine income changes during the process of economic growth. Endogenous growth theory predicts that incomes will diverge. Endogenous growth theory ascribes to technological innovation the role of engine of economic growth, via the existence of a positive feedback mechanism that permits increasing returns to scale. Neoclassical growth theorists remain true to principles of microeconomic theory and grant capital accumulation the role of engine of economic growth; technological progress occurs outside the model and thus is “exogenous”. Both theoretical approaches have found varying levels of empirical support. This chapter examines the determinants of US metropolitan area income growth between 1970 and 1990, and presents an evaluation of whether metropolitan incomes have converged or diverged. Each of the theoretical approaches and empirical techniques utilized by contemporary researchers is deployed in a simultaneous attempt to evaluate the relative worth of proposed alternatives in the evolving body of growth theory.