Scottish Enterprise EPRC Seminar 21 April Context  Economic

Regional development theory

This new conception of space enables identification of highly distinct polarities in a territory. Activities, resources, economic and market relations structure themselves around these polarities to generate a cumulative process of territorial agglomeration and a virtuous circle of development. This conception of space restores one of the inspiring principles of location theories – that of agglomeration economies as the source of local development – to theories of regional development. It is evident that thus severed is any connection with geographical space, abstract or administrative. A more complex conception of space takes over, one based on the economic and social relations that arise in a territorial area. Whence derives the expression diversified-relational space.

When space is conceived as ‘diversified-relational’, theories radically change in their nature. A macroeconomic and macro-territorial approach gives way to a micro-territorial and micro-behavioural one. Abandoned is the notion of a region as a portion of a national system acting and reacting economically as a single, internally homogeneous system. Its place is taken by individual economic actors (large or small, public or private, multinational or local) whose behaviour is studied in terms of location choices, productive and innovative capacity, competitiveness, and relations with the local system and the rest of the world.

The theories within a diversified-relational space approach abandon the short-run view of development as a simple increase in income and employment, and also that of individual well-being, and assume a longer-term perspective. They identify all the tangible and intangible elements in a local area which determine its long-term competitiveness and enable it to maintain that competitiveness over time.

The theories analysed with this conception of space seek to identify the factors which render the costs and prices of production processes lower than they are elsewhere. These factors are (i) elements exogenous to the local context, which originate externally to the area and are transferred into it either fortuitously or deliberately, and (ii) endogenous elements which arise and develop within the area and enable it to initiate a process of self-propelling development.

Exogenous elements comprise the following: the fortuitous local presence of a dominant firm or a multinational company; the diffusion in the area of an innovation produced elsewhere; or the implementation of new infrastructures decided by external authorities.  Although these elements have nothing to do with local features and productive capacities, once they are present in an area they may catalyse new economic activities and development. Endogenous elements are entrepreneurial ability and local resources for production (labour and capital); and in particular the decision-making capacity of local economic and social actors able to control the development process, support it during phases of transformation and innovation, and enrich it with external knowledge and information. All these are factors strengthened and enhanced by a concentrated territorial organization which generates local processes of knowledge-acquisition and learning; networks of economic and social relations which support more efficient and less costly transactions; and advantages of economic and physical proximity among economic actors.

The assumption of diversified space entails definitive abandonment of the notion that regional development consists solely in the allocation of resources among regions. Instead, regional development must be conceived as stemming from local productive capacity, competitiveness, and innovativeness. The neoclassical model of interregional growth (Borts and Stein’s one-sector model) presumed that the national growth rate is exogenously determined, and that the problem for regional development theory is explaining how the national growth rate is distributed among regions. According to this logic of competitive development, the growth of one region can only be to the detriment of the growth of another region, in a zero sum game.  The theories examined here adopt a notion of generative development whereby the national growth rate is the sum of the growth rates achieved by individual regions. National economic development may well increase because of growth achieved by a particular territorial area, and this growth may also come about – in the presence of increasing returns (as for the theories discussed in the next chapter) – with the same resources.

Interpretation of space as diversified-relational has restored to theories of regional development one of the key concepts of location theory - namely agglomeration economies - and made them the core of local development processes. According to this conception, which received its fullest development in the 1970s and 1980s, space generates economic advantages through large-scale mechanisms of synergy and cumulative feedback operating at local level.

A number of seminal theories of the early 1960s for the first time conceived space as diversified-relational. Development was defined, in the words of Perroux, as “a selective, cumulative process which does not appear everywhere at the same time but becomes manifest at certain points in space with variable intensity”.  Perroux’s definition affirmed the existence of ‘poles’ at which development concentrates because of synergic and cumulative forces generated by stable and enduring local input/output relations facilitated by physical proximity. Space is thus conceived as diversified and ‘relational’.

But it was during the 1970s that studies on ‘bottom-up’ processes of development, on districts and local milieux, gave the notion of diversified-relational space its most thorough formulation. The conceptual leap consisted in interpreting space as ‘territory’, or in economic terms, as a system of localized technological externalities: a set of tangible and intangible factors which, because of proximity and reduced transaction costs, act upon the productivity and innovativeness of firms. Moreover, the territory is conceived as a system of local governance which unites a community, a set of private actors, and a set of local institutions. Finally, the territory is a system of economic and social relations constituting the relational or social capital of a particular geographical space.

Any connection with abstract or administrative space is thus obviously discounted. Adopted instead is a more intangible account of space which emphasises – by focusing on the economic and social relations among actors in a territorial area – more complex phenomena which arise in local economic systems.

Precisely because the diversified-relational space theories of the 1970s and 1980s viewed development as depending decisively on territorial externalities in the form of location and spatial proximity economies, they stressed (for the first time in the history of economic thought) the role of endogenous conditions and factors in local development. These theories adopted a micro-territorial and micro-behavioural approach; they can be called theories of development because their purpose was not to explain the aggregate growth rate of income and employment – as in the case of the above-mentioned uniform-abstract space theories – but instead to identify all the tangible and intangible elements of the growth process.