ABSTRACT
A central question in studies of regional economic development is why do certain cities, regions and countries grow at different speeds and why do they achieve different levels of economic prosperity and well-being. Interest in this question has however varied. Classical economists were essentially interested in growth and distribution, though there were different views about the outcome of growth processes, with some (such as Malthus) seeing industrialization as a process that was inherently uneven and that could lead to cumulative growth and decline, whereas Ricardo envisaged a smooth process of growth leading to a stationary state with zero growth and no institutional or technological change due to the decreasing marginal returns associated with agriculture (Boyer, 1997). With the neoclassical revolution in economics attention shifted away from questions of growth and development to questions of the allocation of a given volume of resources. Growth questions re-emerged in the 1940s when some of Keynes’ followers sought to extend his ideas to the long-run and developed models which indicated that market forces acting on their
own would not lead to full employment in the long run (Harrod, 1939; Domar, 1946; Robinson, 1956). In the view of these neo-Keynesian authors the dynamic equilibrium of consumption and investment decisions would result in an unstable macroeconomic development path: “either the economy experienced explosive growth, or it was trapped in a cumulative and self-defeating depression” (Boyer, 1997, 34). To neoclassical economists these neo-Keynesian models rested on restrictive assumptions, of which the most important was that of a fixed relation between the factors of production. Encouraged by the regular character of postwar expansion, neoclassicists such as Solow and Swan consequently developed alternative models that predicted a much more peaceful and regular growth process and eliminated Keynesian problems of long-run unemployment and economic instability: “if all markets are competitive and if the same technology is available in each country, every economy would grow at the same rate - a growth rate imposed by technical change and corrected by demographic trends”. Under these idealized conditions neoclassical theory provides a simple rationale for economic convergence of growth rates.
