Spatial Econometrics, Economic Geography, Dynamics and Equilibrium: A ‘Third Way’?

An important item of agreement between the ‘new’ economic geography and economic geography ‘proper’ is the role of increasing returns in regional economic development. This provides a focal point for the model proposed in this paper, which suggests a ‘third way’ somewhere between the analysis provided by these ‘two’ competing modes of explanation. The paper provides empirical evidence supporting the proposed model using data on manufacturing productivity growth across 178 NUTS2 regions of the European Union. The paper also includes expressions for an equilibrium implied by the fitted model and argues that this helps to identify the proposed ‘third’ way as an approach which is clearly different from the first two ways.

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