Why and How Does Economic Activity Grow? An Overview of the Literature

The question of why economic activity grows is amongst the oldest and most prominent in economic analysis. Starting with Smith [1776], growth theory has attracted a considerable number of scholars. Recently the discussion on economic growth has been revived and has entered the literature under the notion of “new growth theory”. Since this thesis is on the dynamics of regional growth, I will start the theoretical exposition with an overview of the literature on growth. In particular, I will summarize the new growth theory but before, I will recapitulate its origin - the neoclassical growth theory. I will also discuss in how far the neoclassical growth theory will help to understand differences in regional growth. This discussion will consider theories of regional convergence of growth rates. Keynesian or Schumpeterian approaches to growth will not be considered. The findings of this chapter will be summarized in section 2.4.