Abstract
The question of why economic activity grows is amongst the oldest and most prominent in economic analysis. Starting with Smith [1776], growth theory has attracted a considerable number of scholars. Recently the discussion on economic growth has been revived and has entered the literature under the notion of “new growth theory”. Since this thesis is on the dynamics of regional growth, I will start the theoretical exposition with an overview of the literature on growth. In particular, I will summarize the new growth theory but before, I will recapitulate its origin - the neoclassical growth theory. I will also discuss in how far the neoclassical growth theory will help to understand differences in regional growth. This discussion will consider theories of regional convergence of growth rates. Keynesian or Schumpeterian approaches to growth will not be considered. The findings of this chapter will be summarized in section 2.4.
Überholen ohne Einzuholen! (Overtaking without catching up!) Slogan of the government of GDR in the early 50’s concerning economic growth as compared to FRG
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In the following presentation I will follow Barro and Sala-i-Martin [1995, pp. 16 f.]. Note that A in equation (2.1) is specified to be Hicks-neutral, i.e. a change in this factor leaves the ratio of marginal factor products constant.
Note that in the model of Solow the saving rate is exogenously given. Ramsey [1928] suggested a model where the saving rate is endogenous which allows to maximize consumers’ utility subject to a budget constraint. Although this is an important part of the neoclassical growth model I will not consider it here. See e.g. Barro and Sala-i-Martin [1995, chapter 2].
See Solow[1957] or Barro and Sala-i-Martin [1995, p. 346].
See Musgrave and Musgrave [1973] for a discussion of the characteristics of public goods and Romer [1990] for a discussion of the application on R&D. Dowling [1992] defines a function f(·) as concave if f′ > 0 and f″ < 0 i.e. it corresponds to condition 1 on page 6. Note that Romer refers to such a function as being convex.
The theory of endogenous growth will not be presented in detail here since it is now summarized in a number of textbooks. See e.g. Aghion and Howitt [1998]. Verspagen [1992] gives a critical appraisal.
Unlike the model of Romer [1996] we introduce depreciation δ i for both factors, i = K, A. This makes the following presentation less elegant. However, it seems to be more realistic.
See also Barro and Sala-i-Martin[1995], p. 24.
See Barro and Sala-i-Martin[1995], different chapters or Barro and Sala-i-Martin[1992].
The following argumentation has been taken from Sala-i-Martin [1996b, p. 1329].
See Barro and Sala-i-Martin[1995, chapter 11].
See Mankiw et al. [1992, Table III]. The authors give different estimates for three different regions, non-oil countries which include all but the oil producing countries (98 countries), intermediate countries which are 75 non-oil countries, excluding small countries and those whose data are supposed to include measurement error and finally 22 OECD countries.
See Tables IV – VI of Mankiw et al. [1992].
FHU measures the proportion of the working population with a college degree, the saving rate is proxied by INV, the per capita investment in the producing sector. Note that these control variables correspond to those chosen by Mankiw et al. [1992].
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Keilbach, M. (2000). Why and How Does Economic Activity Grow? An Overview of the Literature. In: Spatial Knowledge Spillovers and the Dynamics of Agglomeration and Regional Growth. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57698-0_2
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DOI: https://doi.org/10.1007/978-3-642-57698-0_2
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