ABSTRACT
This chapter reports the elaboration and testing of a new theoretical approach to understanding economic development. The focus is on microeconomic geography, informed by theoretical insights such as those of Krugman (1995) on spatial monopoly, Penrose (1959/1995) on the knowledge capabilities of firms and their networks, and Chesbrough (2003) on ‘open innovation’. In brief, the theory framework suggests that the following has been superseded as a Western industrial organisation model. When firms exploited administrative scale advantages to perform most business functions in-house, among the key functions so performed were those involving knowledge exploration and exploitation (Chandler, 1990; March, 1991). This involved the combination of research and development (R&D), and administrative command and control to enable research to be transformed into commercialised knowledge as products and services, including innovations in both. This often led to colocation of such functions in geographic proximity, then later some decentralisation of facilities within corporate expansion.
