Theories on Innovative and Sustainable Regions (GEO27012)
Institution
Universiteit Utrecht (UU)
Aantekeningen van alle 4 de hoorcolleges in het Engels. Er zijn illustratie en ik heb voor elk hoorcollege een overzichtelijke tabel gemaakt waarin je de verschillende theorieën nog snel met elkaar kan vergelijken (puur ter vergelijking, niet om uit te leren). Succes met het tentamen!
Theories on Innovative and Sustainable Regions (GEO27012)
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Colleges Notes GEO2-7012
Theories on Innovative and
Sustainable Regions
Lecture 1: Convergence and Divergence
Topics covered
- What are innovative regions, what are sustainable regions?
- What is regional convergence/divergence?
- What do the three theoretical perspectives (neoclassical, evolutionary, institutional) predict:
regional convergence or divergence, and why?
- What regional policy implications are drawn by the three theoretical perspectives?
Regional income inequality: high on the academic and political agenda (Thomas Piketty, 2013)
Inequality within a region: example of Silicon Valley
Inequality between regions: convergence or divergence of income disparities between regions?
1) Neo-classical growth theory (convergence)
- Homo economicus (Robert Solow 1956, Nobel Prize in 1987)
- Unbounded rationality (firms, workers, etc.)
- Complete focus on market prices
- Constant returns to scale
- Technology is public good (non-rival and non-excludable)
- Income of a region depends on three factors:
- Capital (investments and net capital flows)
- Labor (population growth and net migration)
- Technology: not specified (exogenous)
Why convergence in neo-classical growth theory?
Declining marginal productivity of capital
o Capital accumulation brings diminishing returns
o https://www.youtube.com/watch?v=ayiV7mH2_Qg
o Rich regions grow less, while poor regions grow more: regional convergence
Labor and capital flows in opposite directions (Borts & Stein 1964)
o Labor from poor to rich regions, due to relatively higher labor returns (wages)
o Capital from rich to poor regions, due to relatively higher capital returns
, o Due to mobility of people and capital, returns on capital and labor equalize regional
convergence
- Technology fully available and accessible: public good
o Diffusion of technology from rich to poor regions
o Technology contributes to regional convergence
o Technology exogenous factor: not explained
Policy implications of neoclassical growth theory:
- The free market will lower regional income inequality
- Remove all obstacles of full mobility of capital and labor
- Technology is a public good: market failure: policy intervention needed to secure incentives
for new knowledge creation through the patent system (through the granting of intellectual
monopoly rights for some time), or providing R&D subsidies
2) Evolutionary growth theory (divergence)
- Homo-Psychologicus (Herbert Simon 1957, Nobel Prize 1978)
- Bounded rationality:
- Access to limited information (despite Internet)
- Limited absorptive capacity to understand and process information
- No ‘optimizing’ but ‘satisficing’ behavior: actors try to optimize as much as they can, but
they are limited
- Actors fall back on tried and trusted heuristics: rules of thumbs
The role of knowledge in evolutionary growth theory:
- Knowledge is not a public good: it accumulates (= gather/build up) over time within
individuals and firms, through learning-by-doing
- Absorptive capacity: provides opportunities but also set limits to learning and innovation
- Creation and diffusion of knowledge is imperfect: search for new knowledge is bounded:
localized learning
- Especially diffusion of tacit knowledge (Polyani 1958, 1966): ‘we can know more than we can
tell’: hard to communicate and difficult to transfer, like how to bike:
https://www.youtube.com/watch?v=l6UBvv5uUuU
- Knowledge does not travel well between regions: geographical distance is a barrier to its
diffusion
- History matters: path dependence, due to self-reinforcing forces: increasing returns (Arthur
1994)
- Technologies: example of QWERTY keyboard: high switching costs (David 1985): lock-
in (= unwilling or unable to trade because of regulations, taxes, or penalties that
prevent it from being profitable or make it illegal to do so)
- Regions: example of Silicon Valley: increasing returns, due to agglomeration (= the
phenomenon where businesses tend to cluster close to each other and high
population areas) forces (Arthur 1989)
- Cumulative causation (= the events are interdependent to each other, effect in one event is
caused by a change in other events, it completes the cycle) (Myrdal 1957, Nobel Prize 1974):
increasing external returns to scale: agglomeration forces:
, Why divergence in evolutionary growth theory?
- Regions accumulate knowledge over time: persistent technology gaps between rich and poor
(Fagerberg and Verspagen 1996): rich become richer, poor cannot catch up: regional
divergence
- Labor and capital flows in the same direction:
- Labor migrates from poor to rich: selective migration (high-educated): brain drain in
poor regions
- Capital flows from poor to rich: high returns to capital
- Labor and capital flows lead to regional divergence
- In long-run, leapfrogging (= the ability of a developing or less developed country to
essentially "skip" less efficient and higher carbon-intensive technologies during the course of
their development) also takes place: technological breakthroughs open new opportunities
for regions
- Long-wave theory (= a long-term economic cycle in commodity prices and other prices,
believed to result from technological innovation, which produces a long period of prosperity
alternating with economic decline) (Kondratieff, Schumpeter)
Policy implications of evolutionary growth theory:
- Active policy intervention to correct the market
- Redistribution of wealth from core to periphery through tax system and public expenditures
- Focus on lagging regions
- Public investments in education
- Tax incentives for capital investments
- In line with current Cohesion policy in the EU
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