Economics of Regional Development
This article focuses on the economics of regional development. It provides an overview of regional-development theory and approaches. Regional-development strategies, which have different effects on economic growth, inflation, welfare, income distribution, and interregional economic inequality, are assessed. The connections between regional development, planning theory, and neoclassical development theory are described. The funding issues of public sector and private sector regional-development organizations are included. Issues associated with measuring the economic effectiveness of regional-development networks are also addressed.
Keywords Developing Region; Development Networks; Economic Development; Economic Growth; Economic Inequality; Economic Problems; Free Trade Agreements; Globalization; Markets; Nations; Neoclassical Development Theory; Neoclassical Growth Theory; Planning Theory; Private Sector Regional Development; Private Sector; Public Sector; Regional Development
Regional development efforts and programs occur worldwide. The modern trend of globalization, and the resulting shifts from centralized to market economies in much of the world, has created both a need and an opportunity for economic development in depressed regions worldwide. International development organizations, national governments, and corporations are coming together to focus on building frameworks for development in order to achieve sustainable economic growth and solve economic problems. Regional-development strategies address the inequalities that form between municipalities and between urban cores and suburban peripheries. Examples of regional-development goals include reduced poverty, improved infrastructure, and the provision of job training. Different regional-development strategies have different effects on economic growth, inflation, welfare, income distribution, and interregional economic inequality (Kim & Kim, 2002).
Issues in regional development include:
- Divergence and convergence.
- Resource-dependent regional growth.
- The spatial centralization of the economy.
- Spatial divisions.
- The social construction of regional identity.
- Differentiation between the capital cities and rural areas.
- Indigenous issues.
- The suburbanization-versus-centralization debate.
- The regional effects of economic reform.
- Regional policy debates.
- Industry clusters. (Maude, 2004)
Traditional principles of regional development have led countries to group development initiatives by geography to maximize growth potential of the country as a whole. This approach tends to result in significant economic growth for the economy in general but also serious interregional income disparity.
Modern regional-development efforts work to distribute development efforts in a manner that strengthens the economies of core and periphery zones alike. Nations encourage decentralization of industries and industrialization in regions without industry to promote growth in small and medium-sized cities. Regional-development programs are expected to create growth on the regional and national levels simultaneously.
Regional development is affected by agglomeration, deglomeration, production factors, infrastructure, and access to markets and information. The connections between investment in regional infrastructure and regional development are very strong. Strong infrastructure lays the foundation for regional growth and development. Nations have different goals for regional development, including equitable interregional income distribution, productivity growth, increased gross domestic product and gross national product, and international competition (Kim & Kim, 2002).
The following section provides an overview of regional-development theory. This section serves as the foundation for later discussion of the funding options of regional-development organizations. The issues associated with measuring the economic effectiveness and success of regional-development networks are addressed.
Regional Development Theory
Development efforts, whether local, regional, or national, have historically been influenced and guided by the predominant theories of economic development and growth. Development theory, closely related to economic-growth theory, examines productivity, growth, income distribution, and economic equality. Development efforts and theory incorporate aspects of the following theories:
- Regional-science theory.
- Planning theory.
- Neoclassical development theory.
- New-growth theory.
- Modern political-growth theory.
Regional development is informed by regional-science theory. Regional-science theory includes a collection of social-science tools used to address regional problems. Regional science, which combines environmental analysis, transportation analysis, policy analysis, resource analysis, and special analysis, studies the connection between regional geography and regional economies.
Regional-development efforts and theory also incorporate aspects of planning theory. Planning theory, which began in the 1940s, combines civic design, corporate management, and systems analysis. Planning involves an understanding of the development process, a long-term outlook, and planning processes or strategies. Planning theory has distinct aspects, including planning practice, political economy, and meta-theory. Planning practice encompasses planning processes and outcomes. The political-economy approach studies the connection between planning and capitalism. Planning meta-theory encompasses theories on epistemological and methodological questions, planning procedures, actions, and behavior. Ultimately, the planning field does not have a defining paradigm. Instead, planning is shared perspectives, interests, and concerns (Brooks, 1993).
Neoclassical Growth Theory
Regional-development efforts and theory were guided throughout the twentieth century by neoclassical growth theory. The neoclassical growth theory, also referred to as the exogenous growth model, focuses on productivity growth. The neoclassical growth theory, promoted by economists Robert Solow and Trevor Swan, was the predominant theory of economic growth and development from the nineteenth to the mid-twentieth century. Exogenous growth refers to a change or variable that comes from outside the system. Technological progress and enhancement of a nation's human capital are the main factors influencing economic growth. Technology, increased human capital, savings, and capital accumulation are believed to promote technological development, more effective means of production, and economic growth. The neoclassical growth theory prioritizes the same factors and variables as neoclassical economics, which emphasizes the belief that the market system will ensure a fair allocation of resources and income distribution. In addition, the market is believed to regulate demand and supply, allocation of production, and the optimization of social organization. Neoclassical economics, along with the neoclassical growth model, began in the nineteenth century in response to perceived weaknesses in classical economics (Brinkman, 2001). Criticism of the neoclassical growth theory focuses on the long-run productivity limitation created from the theory's exclusive focus on the addition of capital to a national economy.
Over the last three decades, regional development has been strongly influenced by new-growth theory. New-growth theory, also referred to as the endogenous growth theory, began in the 1980s as a response to criticism of the neoclassical growth theory. Endogenous growth refers to a change or variable that comes from inside and is based on the idea that economic growth is created and sustained from within a country rather than through trade or other contact from outside the system. The new-growth theory identifies the main endogenous factors leading to sustained growth of output per capita, including research and design, education, and human capital (Park, 2006). There are three main criticisms of new-growth theory:
- It lacks conceptual clarity in its underlying assumptions.
- It lacks empirical relevancy.
- It claims to be a wholly new theory when it is closely tied to growth theories that came before.
- Economists debate the significance of this last criticism. The new-growth theory claims to represent a total break from neoclassical theory, but the continued focus on technology and its relationship to economic growth connects the two main growth theories in significant ways (Brinkman, 2001).
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