Regional growth and the right balance of internal and external connections

With increasing globalization over recent decades, the impacts of economic stimuli at the national level have diminished in terms of their importance for economic processes; the stimuli are increasingly originating at the international level. As markets integrate the competitors of firms are generally firms from other countries and the domestic market is no longer and not necessarily the most important one. At the same time, the internal resources of firms are no longer sufficient for their competitiveness in a globalized World, and, to sustain their growth, they have to rely increasingly on external resources and embedded -but also imported -knowledge in particular, which are normally accessible at the local and regional level (Audretsch, 1988). The regional scale, therefore, has increased in importance for economic growth as a result of globalization forces; competition is now centered on region-region interactions with the regions often located in different countries. This paper is concerned with the study of regional economic growth in advanced countries. The focus is essentially on the dynamics of regional performance and on the mechanisms that allow some regions to grow more rapidly than others, to become more competitive and to remain so in the long run. This paper therefore draws on regional science literature that is concerned with the growth of regions with the primary purpose of clarifying which mechanisms are at work and the secondary purpose of clarifying which development policies ought to be applied. The distribution of economic activities, involving the detection and explanation of location and agglomeration, its efficiency and its evolution, is the other traditional body of economic geography literature from which the analysis in this paper also draws heavily (Isard, 1956; Gabszewicz et al. 1986; McCann, 2002). These two strands of literature cannot be considered as separate; on the contrary, they are clearly complementary since no agglomeration takes place without growth differentials; nor can the dynamics and development patterns of regions be studied or influenced without knowing what drives location decisions and what agglomeration/dispersion forces are at work. However, the study of regional growth remains essentially a study of the dynamics within and between regions, where elements of change are more important than comparative equilibria. The study of the determinants of regional growth is not only interesting from a speculative point of view because it sheds further light on some under-investigated aspects of the phenomena. It is much more interesting when it provides a theoretical basis for more effective development policies. In this respect, it is clear that the situation and characteristics of regions belonging to advanced countries are different from those of regions belonging to emerging or under-developed countries. We start from concepts deriving from the observation of real facts, and analyses the different ways in which it is possible to enhance regional growth in a competitive world. We are therefore concerned with: a) the growth of regions (both advanced and lagging) in the developed world, in particular the causal variables that could be an endogenous trigger to growth. In this sense, particular attention is paid to innovation because, in developed countries, competition is no longer achievable through cost reduction alone, but through a continuous process of upgrading production in both manufacturing and services. Innovation itself is seen as a process based on knowledge and learning; b) regional competition, because in an integrated world the processes taking place locally are not independent of external ones. One of the main pre-conditions for regional competitiveness is regional attractiveness, because firms look for the best production conditions. Competition is a dynamic process and implies continuous change and adjustment; this is why innovation (of product, process and organization) is so important; c) agents of innovation and competition. They are not anonymous and may consist of individual agents (such as firms, entrepreneurs, skilled workers and public institutions) but more and more frequently these