Towards the Application of Dynamic Growth Theory to Regions

There exists, in the theory of regional economic development, a gaping desideratum. This may be stated best in vernacular: ‘Can a region lift itself by its own bootstraps?’ Is a region, within a larger economy, capable of strictly endogenous, self-sustained growth? In 1956, a very thoughtful and stimulating debate between Douglass C. North and Charles M. Tiebout revolved around this very question.1 The uncertain outcome of that controversy was clearly due to the uncertain status of this fundamental question. North contended that the level of economic activity in a region is a multiple of that region’s export activities and thus the growth and development of a region is a function of the growth and development of its export sector. Tiebout, on the other hand, contended that this view was too simple, that other factors could in fact cause a region to grow autonomously — apart, that is, from the growth of its export sector. This issue is further confused by a rather paradoxical analogy between ‘regions’, ‘nations’, and the ‘world’ as Meyer has recently observed: ‘It is quite obvious, moreover, that an economy can exist without exports and can grow without a growth of its exports, as must be true for the world economy taken together.’2