Endogenous Growth Theory and Regional Extensions

In this chapter, we outline the basic mechanisms in endogenous growth theory that identify knowledge creation and diffusion as the core driver of economic growth. Then we discuss how new economic geography, urban economics, organizational science, and entrepreneurship theory have “regionalized” the mechanisms involved. Knowledge creation, however, has been dubbed a “proximate cause” of growth, and the quest for “fundamental causes” has continued. We discuss this recent development in macroeconomic growth theory and argue that the new “institutional approach to growth” opens up a lot of new avenues for future research. Once again, the importance of cities, organizations, and entrepreneurship is largely ignored in macro growth theory. Yet economic geography, urban economics, organizational science, and entrepreneurship theory have a lot to contribute to growth theory by both empirically and theoretically developing our understanding of local institutions and linking these to regional economic development and growth.