Summary

Abstract

The purpose of this study was to contribute to regional growth theory by acknowledging an economy’s relative location in space. At heart of this study is a neoclassical growth model, whose N regional economies are assumed to be big enough to exhibit constant returns, and where each region produces output from the factors physical capital, human capital, and technology-augmented labour. Together, these regions form one superordinate economy. While output in one particular region can only be produced from factors found within the very same region, all regions are interconnected and interdependent with respect to the evolution of output levels. In particular, the choice of location of gross fixed capital formations is viewed as a function of expected rates of return, which depend on physical capital’s current marginal productivity. It is assumed that investment decisions take place either within the originating region, or in its neighbouring regions, from which it follows that the development of a particular region is dependent on its relative location in space.