Economic Growth

Economic Growth

New Directions in Theory and Policy

Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie

This enlightening and significant volume focuses on the nature, causes and features of economic growth across a wide range of countries and regions. Covering a variety of growth related topics – from theoretical analyses of economic growth in general to empirical analyses of growth in the OECD, transition economies and developing economies – the distinguished cast of contributors addresses some of the most important contemporary issues and developments in the field.

Chapter 14: Knowledge Externalities and Growth in Peripheral Regions

Fabiana Santos, Marco Crocco and Frederico Jayme

Subjects: economics and finance, post-keynesian economics


Fabiana Santos, Marco Crocco and Frederico Jayme Jr INTRODUCTION The discussion of externality has assumed a central position since the emergence of the so-called New Endogenous Growth Theory (NEG) theory. In these models, which follow the neoclassical approach to economic growth, the widespread existence of externalities is essential for the appearance of increasing returns at the aggregate level, which offset decreasing returns at the firm level. Among different kinds of externalities, the literature has dedicated a significant amount of effort to discussing the knowledge ones (Romer, 1990; Grossman and Helpman, 1991; Aghion and Howitt, 1992). In these models it is assumed that knowledge externalities can be spread over any kind of space. The aim of this paper is to discuss and deny the validity of this assumption. Although this point has already been discussed by some scholars in the heterodox tradition (Nelson, 1998; Martin and Sunley, 1998, among others), we would like to bring into discussion a new perspective that analyzes the validity of this assumption in peripheral regions/countries. It will be argued that there are some peripheral structural conditions that constrain the generation, transfer and absorption of knowledge externalities. Above all, it will be argued that the construction of ‘space’ in the periphery is determinant for the absence of widespread diffusion of this kind of externality. This conclusion implies that the generality of the NEG theory is very difficult to assume. I. ENDOGENOUS GROWTH THEORY: GENERALITIES Endogenous growth theory or New Growth Theory...

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