Neoclassical Regional Development Model

The economic performance of a region can be analysed by two main theories:

• The first is related with the Convergence of the regional economies, due to a tendency of the poorer countries to grow more rapidly than the developed countries (Sachs & Warner, 1995).

• The second, Divergence, concern the process by which the old continent (Europe) and the U.S. are becoming the most powerful and wealthy world civilization of all time, eclipsing the most populous countries such as China, India (Jones, 1981).

These theories, that explain the regional economic performance, can be linked to the two main schools of economic thought:

Neo-classical Model

Neoclassical regional development model explicitly allows the mobility of capital and labour. It means

Furthermore, the model starts to break down when its assumption on capital, labour and technologies are not met. That will not allow convergence to take place. This is the reason why this model should be taken just as a start point that must be deepened for policy prescription (

Circular and Cumulative Causation

CCC is the second model by which we can understand the origin of regional disparities; it’s based upon the weighting of two forces:

1. Centripetal forces of attraction and suction. They include structural elements and processes that integrate dispersed information, knowledge, and ideas into collectivity. These forces pull resources and elements creating a Backwash effects which increase disparities between regions (Kwaku, 2003).

2. Centrifugal forces foster the decentralization. They constitute a free flow of information, and structural elements and processes that increase the quality and quantity of ideas, knowledge, and information. Components that would decrease inequalities through the Trickle down effect (Kwaku,

From the studies conducted he defined two distinct elements of the CCC: circular causation and its cumulative effect. Afterwards, the Circular and Cumulative Causation was analysed by Kaldor (1939). His studies lead to the conclusion that the manufacturing sector is the engine of growth. In fact, according to Kaldor, the economies have dual characteristics: the labour productivity is higher in the manufacturing sector than in any other sector. That is, growth in demand and production in the industrial sector is a forceful growth mechanism, because it doesn’t have any opportunity costs in the form of a decrease in the production in the non-manufacturing sector. In other words, industrial growth induces the growth of the whole economy, thanks to the behavioural and technological linkages between sectors (Berger,