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GENERAL OUTLOOK OF THE REGIONAL ECONOMY
ARIZONA STATE UNIVERSITY
ECN 212 - MICROECONOMIC PRINCIPLES
WEEK 1
1.1. INTRODUCTION:
Regional economics is a relatively new discipline: in fact its birth dates back to the
mid-1950s. Two dates are significant: 1954, the year when the Regional Science Association
was founded; and 1956, the year when W. Isard's volume Location and Space-Economy was
published in America. The need to include space in economic reasoning had already been
recognized by a number of economists, such as von Thünen (1826), Weber (1909) and Lösch
(1940), and by geographers such as Christaller (1933), who, with his Central place theory
offered a fundamental contribution to the analysis of the structure of urban systems, through
abstract and deductive methods derived from general economic science. However, it was not
until the 1950s and 1960s, thanks to the work and commitment of Isard (1956) and other
experts, that spatial economics began to establish its own theoretical and methodological
background, defining conceptual categories, fields of analysis and operating tools.
During the first phase, the discipline acquired a new autonomous scientific dimension.
Subsequently, regional economics followed an evolutionary path from rapid development in
the 1970s and 1980s to the proliferation of themes and methodological approaches seen in the
current phase. This partly depended on the fact that the boundaries between disciplines
became less and less clear and rigid: as a result, there was an increasing 'fertilization' and
transfer of concepts and methodologies, not only between related disciplines (such as
economic geography or regional planning with respect to regional economics) but also
between different fields of science (social and physical sciences).
1.2. BIRTH AND EARLY DEVELOPMENT OF THE REGIONAL ECONOMY
Location of Economic Activity:
During the 1950s and 1960s, regional economics laid its theoretical foundation,
drawing inspiration from a number of economic theories, critically revised and adapted to the
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regional scale. The first regional economists focused their attention on studies of the location
of economic activity conducted in the first half of the 19th and 20th centuries. They attempted
to organize these studies in a coherent manner, drawing on underlying economic principles
and methodological commonalities.
The production location model, after establishing a set of initial axioms (i.e.
assumptions that simplify the complexity of reality) through a process of logical-deductive
reasoning, arrives at a general theorem capable of explaining the spatial organization of
economic activity. Since distance, economically expressed as transportation cost, is the only
variable in the simplified economic landscape, the location objective is to minimize the total
transportation cost.
Before the birth of regional economics, the abstractness of this conceptual framework
was partially attenuated by the subsequent elaboration of spatial analysis theorists that itself.
According to Weber, for example, certain factors - which he identified in labor costs and
agglomeration economics - can deviate firms from the optimal location calculated on the basis
of transportation costs. The importance of this contribution is obvious: agglomeration
economics is destined to become one of the fundamental principles of various disciplines that,
from different points of view, analyze the spatial dimension of economic phenomena. Urban
and regional economics, economic geography, and territorial economics will all use this
conceptual category to explain the geographical concentration of economic activity and its
spatio-temporal implications, such as regional development or uneven local development.
In contrast, in relation to urban network analysis, Lösch (1940) postulated a more
realistic framework of center and market area than Christaller's rigid architecture, by changing
the size and orientation of the hexagon. This spatial arrangement of the city center not only
made it possible to minimize transportation costs, but also to make large purchases locally,
thus fulfilling the principle of least effort (Lloyd and Dicken 1972). Even the distribution of
urban functions among different centers follows a less abstract hierarchical scheme than
Christaller's: cities of the same size can have different services - as happens in the real world.
Isard, the founder of regional economics, outlines the work of spatial economists in an
attempt to formulate a general theory of location. Taking a neoclassical approach, location
became part of the problem of regional economics, which is to achieve equilibrium conditions
in the economic system. But Isard softened the most abstract assumptions and unrealistic
conclusions of previous theories; he also attempted to link location problems with regional
development, highlighting the underlying spatial relationships. There is much treatment of
agglomeration economics in Isard's thought: he considered the ultimate goal of a general
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theory of location to be the formulation of principles capable of explaining the spatial
complexities that influence the location of economic activity. Isard believes that some of his
predecessor theories - which only addressed special cases - failed to achieve this goal.
Isard highlighted a number of weaknesses in location theory, such as the paradox in
Lösch's model: the assumption of a uniform distribution of people buying goods and services
contradicted the geographical concentration in central places. He tried to resolve this
contradiction by modifying Lösch's abstract landscape: a decrease in the size of the hexagon
as the distance between larger centers decreases makes it possible to account for population
concentration and economic functioning.
However, the best-known and most innovative part of Isard's theory is the method
used in his substitution analysis, making the optimal location problem more analytical and
complex than Weber's approach, which remains Isard's starting point. In his various
formulations, Isard increasingly abandoned some of the abstract axioms of Weber's
conceptual framework, such as the assumption of a homogeneous space; conversely,
irregularity Certain spatial features, such as the presence of accessibility points defined by the
confluence of one or more lines of communication, are capable of attracting company
locations.
But Weber's model remains a fundamental reference point for future studies
regarding the location of production. Other authors, including Isard, reformulated the German
spatial economist's model, introducing innovations to make it more applicable to real
situations. Smith (1966), for example, with his cost-space curve method introduced the
concept of a satisfactory location, which can be found in a region rather than at a point with
minimum transportation costs. Not only Weber but location theory in general, during the
1970s and 1980s, developed a massive series of theoretical and empirical studies that
expanded the field of analysis from the location of production activities to residential mobility
and household location, the location of public facilities and spatial equilibrium analysis
(Nijkamp 1986). At the same time, there were advances in formalization and mathematical
modeling, thanks to the development of technologies for the analysis and representation of
territorial phenomena.
Regional Economic Development:
In the 1950s and 1960s the rise of Fordism and the intensity of urbanization processes
highlighted territorial disparities in the process of economic development, both on a regional
and global scale. In this perspective, regional economists focused their analysis mainly on the
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problems of uneven economic growth and spatial disparities, the dynamics of territorial
systems, the diffusion of economic phenomena on a regional scale, and regional policies.
Between the second half of the 1950s and the first half of the 1960s, reflections on the
determinants of territorial development led to the formation of an extensive body of theory on
regional economic development. At the same time, regional economics took on an operational
dimension and became the theoretical foundation for regional planning and regional policy
that flourished in many developed countries, along with the popularity of Keynesian
principles after the Second World War.
Within the field of regional development we can identify key areas of research, theory
and models, including growth poles, cumulative causation, core-periphery, export base and
import region models.
Perroux (1950, 1955), building on Schumpeter's reflections on the revolutionary nature
of innovation and the non-linearity of economic development, assumed from the outset that
space is not homogeneous. Economic growth does not occur simultaneously and equally
everywhere, but is concentrated at certain spatial points called growth poles, which can be
identified by the presence of dominant industries. The polarizing impact on the region of the
driving industries depends on the extent to which these industries increase the demand for
goods, stimulate export flows to domestic and international markets, create jobs and
encourage the growth of related industrial and service activities. Although the growth pole
theory implicitly refers to spatial dynamics, some scholars observe that, in reality, the input-
output relationships that Perroux used to describe the development process do not have a well-
defined spatial dimension (Capello 2004). It was Boudeville (1968) who which 'adds' a spatial
dimension to Perroux's argument, explaining the importance of geographical concentration
and urban competition, which allow driving industries to generate growth poles.
It is clear that growth pole theory shifts the analysis from a microeconomic
perspective, which considers the location behavior of single firms, to a macroeconomic
dimension that examines the spatial impact of location. Attention is therefore focused on the
growth dynamics and spatial configuration of cities and regions; in this context, spatial
external economic agglomeration is fundamental in explaining the geographic concentration
of economic activity. Growth poles themselves give rise to spatial disparities, especially in
territorial contexts where no firm is able to create its driving force.
Growth pole theory influenced regional planning in a number of ways after the Second
World War, and inspired models of exogenous interventions for underdeveloped regions, both
in economically developed countries (Mezzogiorno Italy, France and Spain) and developing
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countries. We should observe that many experiments failed due to the determinism implicit in
the model itself.
The cumulative causation model has many points of contact with Perroux's growth
poles. According to Myrdal (1957), the economic benefits generated by external economic
agglomeration, which in turn generate further benefits, lead in the short run to geographical
growth concentration and higher regional income levels. The origin of the cumulative causal
process, according to Myrdal, lies in the specific conditions that determine the initial
advantages for economic development in central regions. None of the models explain why
concentration and growth originate in a particular place; however, it is useful to explain
growth after the initial location, not why. Myrdal himself argued that the process was the
result of an 'accident of history'.
Myrdal also tried to explain how other regions - the periphery - are involved in the
growth process in the core region. In classical equilibrium theory, the phenomenon of growth
is channeled from the core to the periphery through a spillover effect that results in the
leveling of regional disparities. In reality, when viewed from various perspectives, the
spillover effect can have a negative impact on the periphery. Myrdal was skeptical about the
ability of the spread effect to compensate for the backwash effect through the work of market
forces alone. He argued that regional policies are needed to adjust for growth differentials.
Although conceptually related to previous theories, core-periphery models such as
Friedmann's (1966), offer a more accurate analysis of the relationship between economic
development and territorial organization, with a particular focus on urban hierarchies and the
role of urban centers in the economic development process. Space is no longer organized
around poles or growth points, but rather into an interconnected and well-organized system of
urban centers (connected by flows) population, goods, services, capital and technology).
According to Friedmann, it is not countries in general that are the driving force of the
economy: core areas are cities in developed countries, in contrast to lagging peripheral areas,
which are subordinate to core areas despite undergoing functional transformation over time.
So the concept of urban networks re-emerged, though no longer following Christaller's logic.
But the result is a geographical model of uneven development.
Reynaud (1984), based on how relationships are established between people, goods,
capital and information in core and periphery regions, and how these relationships evolve over
time, identified different types of core and periphery regions. These include rapid growth in
core countries, which results in a state of economic dominance and hypertrophy in core
countries, in contrast to a state of subordination, decline, or simply economic exploitation in
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peripheral countries. When the core countries reach a certain stage of development,
diseconomies arise; the gains arising from the concentration and centralization of economic
activities are offset by congestion and high costs of spatial development. The consequence can
be centrifugal flows, i.e. flows of capital rather than people, towards the distant periphery,
where low-tech and labor-intensive industries are relocated.
Underdeveloped regions that benefit in this way become dominated peripheral regions,
while peripheral regions that transfer some of their capital to dominated peripheral regions
grow in economic strength as they retain headquarters and industrial centers. Thus, the core
region becomes a hypercore, or center at a higher level, which, under better conditions, will
be coordinated, stimulated, and directed, optimizing existing resources rather than attracting
them to the core region. In other words, investment in peripheral countries is not a sign of
weakness, but rather an index of renewed vitality and expansionism. But Reynaud's model
does not exclude the possibility that endogenous growth processes, which do not depend on
the dynamics of the center, can originate in the periphery.
The next group of theories developed between the 1950s and 1960s was the export
base theory, which considers demand growth and per capita income as determinants of
regional economic development.
Income becomes a synthetic indicator that can be used to represent and describe
disparities in the regional development and growth process. Despite their differences, these
theories are based on Keynesian macroeconomics, and in particular macroeconomic models of
domestic income and growth, multipliers and input-output analysis. From the macroeconomic
dimension, the models and analytical tools are adapted and applied at the regional scale.
Among the most important theoretical models is the export base theory, the simplest
model of regional income that has been the source of empirical analysis on regional
multipliers. Departing from Hoyt's initial intuition that departs from the distinction between
employment in basic and non-basic sectors, designing a model that explains the spatial and
functional growth of cities that also includes the concept of urban multipliers, the formulation
further recovers the export base theory with a Keynesian framework and is adapted to regional
analysis.
In its simplest version, developed from North's (1955) stadial model, export base
theory assumes that a region's development is guided by export demand, thanks to the
multiplier effect of export growth on regional income. In contrast, later formulations
recognized that several causes, and not just external changes in exports, could generate
variations in regional income: government investment or spending, private investment,
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changes in marginal consumption propensity or marginal tax rates (Richardson 1969). Further
developments, rather than considering only two regions, placed the theory in an interregional
context and assumed that exports from one region - and thus the multiplier effect on income -
depend on income generated in other regions (Capello 2004).
In the 1970s and 1980s, a dynamic version of this model was formulated (Richardson
1978) that solved the problem of the relationship between employment in the service sector
and total employment, which remained constant in the early models: in fact employment in
the service sector could grow regardless of the trend in the basic sector.
The advantage of the economic base model is that it highlights certain important
factors in regional growth, such as trade and specialization in production. Although the
importance of specialization in production is associated with the theory of local development
that became popular in the 1980s, the economic base model starts from an exogenous point of
view. Regional growth is solely caused by external factors: regional specialization is formed
due to export growth. This observation leads us to reflect that in the economic base model,
there is no territorial dimension to the development process: regions are presented as
internally homogeneous spaces, in contrast to external spaces or other regions whose diversity
is undefined. In other words, there is no analysis of specificities, of endogenous resources, of
productive relations, of regional historical processes usually found in regional development
literature.
Another limitation is the failure of the basic economic model to consider sector
disaggregation, which is significant given that for each sector of specialization, the multiplier
effect of exports on income varies. This is due to the demand for intermediate goods
generated from the production of exported goods being directed to domestic producers, or
conversely leading to high imports in other sectors. Furthermore, the models assume that there
are no barriers to supply expansion: in the face of increased external demand, the system is
endowed with the necessary internal resources to increase capacity productive capacity,
thanks to idle factors of production, and productive capacity that is not being utilized or can
be expanded at no cost (Capello 2004).
The use of the basic export model for long-term forecasting is limited by assumptions
implicit in the stability of multipliers. In fact, in the long run, along the growth path, there is
likely to be a process of production diversification in the local economy that produces import
substitution effects and does not conform to the assumption of constant multipliers. In the
long run, there is likely to be a change in the specialization of an area, towards more modern
and advanced sectors with higher value added, as the region may gain the ability to transfer
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resources from declining sectors to growing sectors. In other words, structural change, one of
the most interesting aspects of dynamic analysis, is not included (Capello 2004).
From an empirical analysis point of view, various methods to distinguish between base
and non-base sectors have been proposed, including the location quotient (Hildebrand and
Mace 1950) and the minimum requirements approach (Ullman and Dacey 1960). The
possibility to estimate base sectors, in turn, serves as a starting point for regional multipliers:
Archibald (1967) directly estimated the propensity to purchase goods locally, while Allen
(1969) considered the inverse of a region's GDP leakage as a proxy for regional multipliers.
Input-output analysis has been used to estimate the impact of an increase in demand in
one sector on production in another sector of the local economy and on total production. In
this case, the export base model can be considered as an input-output model with only two
sectors.
The Harrod-Domar model (Harrod 1939; Domar 1957), takes a different approach:
also adapted to the regional scale, it highlights how regional dynamics can be maintained even
by capital or productive investments from other regions, which will increase regional
production and income. This model differs from the export-based model in that it assumes a
long-run rationale.
1.3 RECENT ECONOMIC OVERVIEW:
Local Production System Regional Development to Local Development
Since the mid-1970s, many developed countries have recorded economic and
demographic growth in regions that in previous decades were considered peripheral when
compared to important urban industrial agglomerations. At the same time, these
agglomerations have undergone a process of demographic decline and deindustrialization,
followed by a shift towards extreme tertiarization. This is exemplified in the case of Italy:
growth is seen in the Northeast and the Center, thanks to a network of small and medium-
sized enterprises specialized in the production of traditional manufactured goods organized
into local production systems.
The emergence of territorial configurations that differed from the forms dominant in
the Golden Age of Fordism, and which were not contemplated by traditional theories,
prompted many scholars to revise the theories and models used until then to interpret and
describe the dynamics of urban and regional spaces. The process of revision was gradual:
initially the phenomenon of peripheral growth was interpreted as a consequence of
transformation in the core and restructuring of large firms. It was thought that development
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spread due to the decentralization of certain functions from the core to the periphery of the
economic and territorial systems of industrialized countries. Models inspired by product life
cycle theory are examples: these include Berry's filtering down theory, van den Berg's (1982)
urban life cycle model, as well as studies on production decentralization and subcontracting.
The main limitation of this analysis is that it overestimates the role of exogenous
factors in regional dynamics, and relegates the role of specific components that cannot be
reproduced in each region to a secondary role, and thus defines 'endogenous development
factors' in the regional development literature. In subsequent theoretical developments, the
recognition of the plurality of territorial configurations led to the abandonment of singular and
dualistic models (such as the core-periphery firm model, the large advanced firm versus the
small backward firm model).
Especially the work of Piore and Sabel (1984) contributed to the recognition of the
autonomous role played by small firms in the process of regional development. The two
authors argued that the success of small enterprises signaled the transition from mass
production to flexible production, which were regarded not only as two different systems of
technical and economic organization of production, but also as two opposing systems of
regulation. Piore and Sabel's analysis provided a point of convergence for a series of
subsequent studies conducted in a number of developed countries, and stimulated much
further research, contributing to the creation of a vast body of theory, which today constitutes
the literature on local development.
The underlying assumption is that economic and regional development is the result of
the interaction between global phenomena occurring at the level of the world economic, social
and technological system (showing a trend towards standardization), and the specific
development potential of individual locations. Today, this is the dominant theoretical
approach: the interaction of a single or specific phenomenon with more general phenomena
generates individual economic regions, and forms the dynamic framework within which
development opportunities for peripheral regions are placed or have been placed.
Development no longer follows a single path, but a number of sectoral and organizational
paths. The concept of space as an abstract or geometrical entity loses its significance, and the
concept of territory, considered as a non-transferable set of resources (socio-economic,
infrastructural and economic), becomes central. The region offers a favorable environment for
companies and agents, who mobilize resources to drive the competitiveness and development
of the region. Even regional planning is changing direction, as a result of the involvement of
local resources and the leading role played by local actors.
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Analysis and theorization of Italian local development in the 1980s and 1990s,
particularly on industrial parks and local production systems in general, belong to this school
of thought. The main theory of industrial clusters was created by Becattini (Becattini 1987,
1989, 1998, 2000a,b; Becattini et al., 1991, 2001) and his school. In Italy, this theme is very
popular in the context of territorial studies, as industrial clusters are a characteristic feature of
the country's economic and territorial structure. Industrial districts are a feature of widespread
urbanization and industrialization in the northeast and center, although they can also be found
in areas with a concentrated territorial structure such as in the northwest. In many cases, the
districts originate from proto-industrial specializations or ancient crafts in related fields.
Industrial districts specialize mainly in sectors in which Italy gained a competitive advantage
after the Second World War: fashion (clothing, footwear, leather goods, and jewelry),
household goods (furniture, tiles, faucets), and mechanics.
Becattini reinvented Marshall's industrial district model, and in particular the concept
of external economies, by highlighting how the functioning of the district depended on social
relations between producers located outside the production plants but within the territory
itself. Specialization and division of labor within a limited territorial area create a number of
advantages in terms of lower costs and higher production efficiency thanks to the creation of
an external localization economy: the development of complementary activities in the
manufacturing sector (in particular - the registered machinery sector); the accumulation,
replication and circulation of knowledge within the districts (Marshall's "industrial
atmosphere"); the production and diffusion of innovations generated by the combination of
cooperation and competition; and the development of service activities, labor markets and
specialized transport infrastructure. By shifting the focus from the firm as an isolated subject,
to the environment in which it operates and which determines its living conditions, Becattini
introduces a new unit of analysis that links the single economic actor and the market, the local
production system.
The study of industrial districts has focused mainly on analyzing the relationships
between firms (Albertini and Pilotti 1996; Varaldo 1997), the causes of district formation, the
actors (private or institutional) operating in the district, the criteria and methodologies used in
spatial identification, and the possibility of identifying districts in regions outside the original
region (the Italian Mezzogiorno, for example) (Viesti 2000). Developments in the analysis of
districts led to the description of districts as examples of a more general category of
autopoietic or self-sufficient local systems (Corò and Rullani 1998). The functioning of
districts is based on a dynamic relationship between strong integration and internal cohesion,
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based on productive, social and institutional relationships on the one hand, and external
openness, e.g. export flows on the other. The distinctive feature of this form of territorial
organization lies in the fact that it emerged and has always been functioning without an
organizer and decision-maker, like an orchestra without a conductor.
Recent studies are mainly driven by the transformation seen in the region.
industrialization during the process of globalization, the most obvious and problematic aspects
of which are the delocalization of production to countries with low wage labor, and the
increased competition from other developing countries (Cesaroni 2003; Mistri 2006; Visconti
2002). Districts are no longer Becattini's compact territorial system, but rather 'exploding
systems' with their nerve centers located in their original territory and production branches
located in more or less distant places. In this context, there are many themes that can be
subjected to empirical and theoretical analysis: the possibility of destructuring and the future
of districts, the ability to replicate the model in other regional contexts, the role of local
institutions, industrial policy and the evolution of regulations governing districts.
Knowledge Spillover and Cluster Theory
In the 1980s, there was renewed interest in Marshall's theory relating to dynamic
efficiency and the role of knowledge diffusion in regions. This followed the recognition of the
importance of scientific and technological knowledge in the process of economic and regional
development on the one hand, and the role of geographical proximity in facilitating contact
between economic actors, which is the basis for the exchange of knowledge inputs that, on the
other hand, are essential for innovation.
The link between knowledge, innovation and geographic concentration is raised by
cluster theory. An industrial cluster, which has many analogies to an industrial park, can be
defined as a territorial concentration of competitive and highly interdependent firms. It is
characterized by value chains or segments of value chains, their production networks and
inter-firm relationships. Also included in this group are all local institutions and organizations
that interact with local firms and determine the socio-economic context, such as universities,
research centres, the uniqueness of local culture, and trust relationships between firms.
The cluster phenomenon has been widely discussed in the economic and territorial
literature; however, the most important theoretical contribution remains M. Porter's
formalization of the concept into his more general theory of competitive advantage. In The
Competitive Advantage of Nations (1990), Porter formulated a theory based on domestic,
regional, and local competitiveness, in which clusters play a fundamental role. Competitive
advantage essentially relies on a firm's ability to outsource functions in order to achieve a
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different type of competitive advantage for each activity or function, in association with
regions exemplified by the diamond concept. Porter's argument departs from the assumption
that the competitiveness of a country does not depend, as has been thought for a long time, on
a particular set of natural resources or political-economic conditions (wage rates, exchange
rates, protectionist regimes, etc.) but rather on the dynamism of the firms that exist within it;
in turn this dynamism depends on specific and inimitable factors found in the region that
operate in synergy, which becomes a competitive advantage the foundation for companies to
exert increasing influence through their relationships with other companies.
Given the operating mechanism described in his first work, Porter
explores the concept of clusters and their relationship to economic development issues in
more depth in his subsequent writings. Clusters are defined as geographical concentrations of
firms and institutions that are closely connected, compete and cooperate in a particular sector.
The analogy with industrial zones is obvious, as in many ways, clusters represent an
evolution. But it is important to emphasize that institutional elements are an integral part of
clusters.
The observation of the geographical scale of clusters is also new with respect to
industrial parks, and in many ways, it explains the evolution of industrial parks as seen today.
Clusters can arise at different geographical scales: what matters is not the spatial proximity of
local actors, but rather the relationships between economic and institutional actors, which can
persist regardless of the physical distance that exists between them. In fact, clusters should
include complementarities, the impact of technologies, competences, information, marketing,
and consumer needs that concern both firms and industries, in other words all the aspects that
are essential to define collective action and support intervention policies at the local level.
Another significant contribution to cluster theory came from Maskell (2001), who
sought to explain the origin and growth of clusters by focusing primarily on the process of
knowledge creation. Given that globalization has made many of the production factors that
determine competitiveness ubiquitous, Maskell highlights how the most dynamic firms seek
to develop their ability to learn and create knowledge faster than their competitors, rather than
delocalize. This explains the observation that knowledge creation, and as a consequence
economic growth, is not insensitive to the spatial organization of economic activity: on the
contrary, it is strongly influenced by it, as shown by the trend towards the concentration of
many innovative activities.
Maskell's analysis highlights the mechanism that drives knowledge creation, which is
thought to stem from a trade-off between the two dimensions that govern clusters: the
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horizontal dimension, organized around the principle of variety, and the vertical dimension
organized around the principle of specialization. Knowledge creation can only be guaranteed
simultaneously in both dimensions through a constant increase in the number of firms. This is
an important aspect for the future development of the cluster: only if the firms in the cluster
utilize the benefits of learning in both dimensions can an effective improvement in economic
performance be achieved. Therefore, an increase in the number of firms, which may arise as a
result of relocation, the birth of new entrepreneurial activities, or spin-offs, is important for
the economic growth of the cluster.
Other authors have discussed the contribution of clusters to economic growth.
Endogenous growth theory (Grossman and Helpman 1991; Romer 1994) focuses on the
premise that knowledge accumulation leads to productive applications and hence economic
growth. This perspective revived the interest of researchers in relation to the role of geography
in knowledge creation, dissemination and production development. Grossman and Helpman
argue that spillovers result in a cumulative process of knowledge creation, and since this
process evolves at the geographical level, it can explain variations in economic growth rates
between regions.
Krugman and the New Economic Geography:
Krugman (1991a,b) and his New Economic Geography made a fundamental
contribution to the explanation of the spatial concentration of economic activity. By focusing
on two important aspects of spatial economics - the existenceeconomics of agglomerationsand
the factors that determine the location of firms - the phenomenon of geographic concentration
is interpreted in terms of the interaction between centrifugal and centripetal forces, through a
model centered on increasing profits, transportation costs and migration displacement.
Increased profits have an impact on the tendency to concentrate activities in space, as this
guarantees the benefits of a possible relocation and increased profits after the expansion of the
local market; transportation costs push firms towards closer locations towards locations that
are close to markets large markets; displacement migration affects the amount of employment
in a region and the size of local markets, which in turn affects potential profit opportunities,
thus encouraging agglomeration. Spatial agglomeration of productive activities
createscumulative conditions for production growth, a process that can only be halted through
factor intervention conflicting external factors.
Krugman argues that the cumulative mechanism lies in increasing market size: the
entry of new firms in new local markets will attract new workers and new populations,
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enlarge local markets, expand profit potential and compensate for the decline in profits
suffered by local firms as a result of increased local competition; in turn, the increase in the
size of local markets encourages the entry of new firms, into the circle of agglomeration and
development.
1.4 ENVIRONMENTAL INNOVATOR
In the context of studies on the relationship between technical innovation and regions,
the Groupe de Recherche Européen sur le Milieux Innovateur (Gremi) identified a number of
conceptual categories of milieu innovateur and reseau d'innovation that contribute further to
our understanding of the role of endogenous factors in local development (Maillat et al.,
1993).
In contrast to the functional vision of technological progress, the innovateur milieu
approach gives a leading role to different areas and combinations of resources in the development
process. The creation and development of innovative firms: innovation does not pre-exist in the
relevant environment, but rather innovation exists in the relevant environment that serves as an
incubator for innovation (Maillat et al., 1993). Therefore, the innovation process should be
interpreted as a learning process based on specific resources integrated into each production
process. The territorial context in which the company operates is no longer a limitation but rather a
strategic variable in the innovation process itself.
Research systematically conducted since the mid-1980s by Gremi in various European
regions has resulted in the identification of certain territorial components capable of
explaining the origin and development of innovation processes. Aydalot (Aydalot 1986;
Aydalot and Keeble 1988) distinguishes three different categories of environmental factors,
based on the type of innovation produced.
In its less complex form, innovation is generated by internal knowledge within the
firm, and is therefore integrated into production. In this case, the territorial factor consists of
the local industrial structure: density of firms, inter-industry links, specialization in
production, knowledge and expertise in the local system, the degree of external dependence,
and the importance of research and development at the local level. These characteristics are
commonly found in old industrial districts that still function in a complex way with a network
of small and medium-sized enterprises specializing in innovative sectors (such as mechanics)
and strong collective organizations. Innovation can also be generated by specialized units
within firms that are not involved in the production process. In this case, territorial factors are
the main attraction factors: transportation and communication infrastructure, equipment for
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training human resources, and the quality of the living environment. Finally, the third type of
innovation is generated by knowledge that is generated outside the company, in research
laboratories and universities, and then integrated into the company itself. In this case synergy
factors are important: research infrastructure, inter-firm exchanges, the presence of venture
capital and innovation incubators.
The role played by certain local actors is crucial: collectively, they organize and drive
the development of the economic environment in which they operate. These include large
companies, collective institutions, financial institutions, spontaneous associations, trade
unions and trade associations. Their actions are essential, at the local level, to disseminate
knowledge about new technologies, foster a local spirit of innovation and provide capital to
fund the innovation process.
According to Gremi, the environment can be defined as a set of relationships formed
within a geographical area in which a production system, technical knowledge and a set of
actors interact. The entrepreneurial spirit, organizational practices, ways of using new
technologies, approaches to the market and the external environment, accumulated knowledge
that allows controlling production processes and creating new technologies, are all an integral
part of the environment: they are specific and uniform features that contribute to its
identification. Thus, the environment has a meaning that is not material, in the sense that the
environment becomes a continuous process of perception and learning.
Conclusion:
From Isard's first analyses, regional economics has followed a long and complex path,
with periods of more or less intense growth within it, and culminating in the current phase,
characterized by a plurality of theoretical and methodological contributions. At the same time
the application and dissemination of new information technologies has expanded the
analytical and representational power of the discipline itself, enabling new developments
particularly in modeling. The current era, characterized by the strong economic, social and
technological changes that have also swept the region, opens further perspectives for
empirical and theoretical analysis, not only for regional economics but also for regional
sciences in general.
The first study addresses the relationship between globalization and territorial change,
with particular reference to the role of the territorial dimension in production processes. The
geographical fragmentation of production and the diffusion of ICTs actually create a 'virtual'
territory, organized on the basis of a 'network' model rather than spatial proximity. As a result,
16
indifference to location seems to weaken the function of the territorial factor on which the
regional economy depends for small and medium-sized enterprises to build and reproduce
their competitive advantage over time. At a theoretical level, this requires us to reconsider the
explanatory power and coherence of some of the traditional conceptual categories of regional
science, especially local production systems and industrial zones.
Another line of research, only partially explored by the social sciences, leads to
analyzing the relationship between regional economics and other scientific fields to identify
common conceptual categories. Complex systems theory, derived from physics and biology,
has been introduced in the social sciences to explain the dynamics of systems - whether
economic, spatial or social - although its concepts and operating capacity remain to be
explored. Among the properties of complex systems, self-organization seems to be the most
interesting in the spatial sphere, not only to explain the dynamics of territorial systems - at
different geographical scales from regional to local - but also to implement policies and
planning.
REGIONAL ECONOMY:
ECONOMIC STUDIES FROM EXPERTS
2.1 INTRODUCTION:
The discussion of territorial disparities is of particular relevance in regional
economies. This explains the stimulus to investigate and identify the economic factors
governing the spatial distribution of economic activity, the attention to the analysis of regional
development processes, and the commitment to propose adequate measures to solve or at least
alleviate the existing difficulties.
In this context, research can focus on important issues such as price formation,
production levels, economic growth and development, employment trends and income
distribution. What emerges from the analysis is the centrality of firm location choices, the lack
of homogeneity in the spatial distribution of productive activities, the possibility of labor
migration, and the emergence or intensification of regional disparities. These are problems
that signal more or less clearly the existence of income or employment differences. If we look
far back in time, these problems occurred in many countries, whatever their stage of economic
transformation.
In this view, it is interesting to examine a particular situation. To try to formulate an
interpretation, with the aim of proposing possible solutions. As pointed out by D'Alauro
17
(1975), even in short surveys, most interpretations of regional theory can be extended to
groups of regions, to states, and to regions representing states. However, some approaches are
able to adapt better than others to critical interpretations of specific situations (such as
underdeveloped regions), or offer a sharper analysis of the evolutionary processes affecting
the whole system, while providing potential explanatory relationships.
A region, literally understood as an area that has an organic bond between society and
the natural environment, can also be considered, albeit inaccurately, as an area that, in some
sense, stands out from other regions. However, the concept of region is analyzed first
according to the general scientific paradigm, and then according to the paradigm of the
economic discipline. This cannot avoid the influence of the social context, so it is important to
see, in a specific historical setting, both the evolution of analytical studies and the
development of society.
The relationship between scientific inquiry and an overwhelming interest in the
environment in which we live was rigorously understood by Italian writers in the past, even
back in the day: in this they differed from their more accredited counterparts in the UK.
Consequently, the contributions made during the 'golden age' of the Italian economy were
significant, and showed a clear tendency to show a path of... pathways designed to alleviate
local problems. Thus contributions emerged from three Italian schools of thought: Scuola
Toscana, Scuola Lombardo-Veneta and Scuola Napolitana. Those from the Scuola Napolitana
are particularly worthy of further examination. Given the ideas they expressed and their
interesting projections regarding the region. Here, however, we limit ourselves to Genovesi's
significant contributions.
In economic disparities, the qualitative element most responsible for regional
disparities is production effectiveness. In this context, there is a direct reference to Ricardo's
comparative cost theory (1817), which states that specialization is fundamental. Production
efficacy is generally related to the elements that characterize the economy: natural resources,
climate, and type of labor force.
However, by limiting commercial relations between countries (regions) only to when
gaps arise, this approach leaves a considerable operational void. But this can be rescued by
recovering a relationship that covers every phase of international or interregional trade: from
vertical to horizontal, following different modalities in which different types of trade develop
in a complementary way, and generating well-defined productive facilities. The dynamic
version of Fanno's theory of comparative costs extends this approach, and is able to follow,
over time and in space, the evolutionary process that, through trade, creates strict
18
interdependence between regions at different stages of development.
On the other hand, the phenomenon of dualism within national borders gave birth to a
unique form of analysis. Thus the Italian 'Problem of the South', although having aroused
considerable attention since the late 19th century and the first decades of the 20th century,
regained its vigor after the Second World War, and became the focus of even greater attention
after the fall of the Berlin Wall. The differences that emerged strongly at the time of Italy's
unification, and exploded after 1950, signaled a tremendous and persistent gap between the
developed and underdeveloped regions, such that this situation came to be universally known
as the 'Italian regional gap'. gap'.
The underlying message aims to arouse conscience, so that actions aimed at depressed
regions can result in effective recovery of output and employment. Such strategies, in the form
of adequate support as a foundation for economic dynamism, should aim to eliminate existing
disparities. Measures should therefore prevent the worsening of existing imbalances in
disadvantaged areas, removing any potential obstacles to clear intervention by the central
government, while maintaining the primary objective of eliminating all forms of waste.
2.2 CONTRIBUTION OF ANTONIO GENOVESI:
The spread of the Enlightenment, the decline of mercantilist ideas, and the rise of
Physiocracy characterize the mid-eighteenth century, a time when complex theoretical
approaches began to take shape and develop, leading to identification of Italian Schools of
Thought: Scuola Napoletana, Scuola Toscana and Scuola Lombardo-Veneta.
The critical element that connects all the Schools is their analysis of the
relevant regional situation. It is true that each scholar investigated the economic conditions in
his respective region, proposed structural improvements and socio-economic reforms, and
provided original theoretical explanations; not infrequently, these became the forerunners of
the analysis later undertaken by the Classical and Neo-Classical schools.
The dramatic regional situation afflicting the Kingdom of Naples in particular stirs the
conscience and urges the more sensitive souls to try to find a solution. The Scuola Napoletana
stands out in particular for the originality of its contributions, which draw attention to aspects
of puzzling relevance of the topic. In this paper we refer in particular to the work of Antonio
Genovesi, a leading proponent of this school of thought, precisely because of the reference to
the regional character that emerges from his work. His theoretical and applied work proved to
be wide-ranging and very important thanks to the depth of his knowledge and his extensive
language skills, he was able to investigate the work of many scholars. In the Italian
19
Mezzogiorno between 1749 and 1789, the regional situation was dramatic: agriculture was in
a deplorable state, credit was in short supply, and commercial movement was scarce. Vast
powers belonged to large landowners or to the Church. Manufacturing was in decline, and
trade was sluggish. Grain prices were restrained and agricultural workers' wages were below
subsistence levels.
In this deplorable situation, Genovesi championed radical reforms, seeking to arouse
people's interest in economic and political issues. Based on his specialized training, he felt the
need to base his analysis on available data and information, based on physical and historical
events. He therefore took an organic approach, backed by evidence. It reflects regional
experience, is supported by quantitative data on physical resources and key economic
indicators, and is evaluated in light of the socio-political situation. In his analysis, Genovesi
even postulates two separate stages of development. In the first stage, a country can escape
poverty thanks to improvements in agriculture, caused by population growth. In the second,
more advanced stage, social welfare and economic strength, which can be achieved even on
an international scale, are achieved. This is made possible through the improvement of the
manufacturing sector as the 'second source of a country's comfort and strength' and the
development of trade, the 'third source' of welfare.
In fact, although Genovesi considers population as the main strength and wealth of an
economy, he links demographic trends to the capacity to support the productive activities of
households responsible for generating wealth. Therefore, the level of population has a lot to
do with the quantity of land available for agriculture, and the dynamics of manufacturing and
commercial activities, which need to grow in synergy.
In Genovesi's vision, given the many problems experienced by the agricultural sector,
the development of manufacturing could represent a valuable source of wealth. But this is a
two-way relationship: just as a flourishing agricultural activity can cause the manufacturing
sector to prosper, so a decline in manufacturing activity can reduce the agricultural sector and
suppress population growth. Indeed, it is thanks to a diligent manufacturing sector that an
economy is able to meet people's needs, enabling growth and consequently increasing demand
for raw materials and food.
Genovesi's vision of luxury is important. Although he condemns luxury
exorbitant, Genovesi did not consider it an inhibiting factor. He did consider luxury as a
potential means to multiply discontent and promote progress, provided that such progress was
fueled by domestic production, otherwise it would result in dangerous currency outflows that
only benefited other countries. This initial idea gave rise to the Keynesian principle of
20
effective demand. Genovesi, on the other hand, was distressed by extravagance, which he saw
as a path to further vice.
Trade, analyzed in its various forms and through its various distribution channels,
attracted Genovesi's attention because it was the path to territorial expansion. He believed that
commercial movement should not be hindered, and the state should only regulate tariffs and
duties. In the home market, when barriers were removed, free trade relations developed and
became organized. This vision already shows a careful consideration of regional development.
If Genovesi was essentially a mercantilist and protectionist in terms of manufacturing
he considered it impossible to preserve and consolidate manufacturing without adequate tariff
protection he was a free trader in agriculture. On the other hand, the problem of food
production, then so desperate in southern Italy, should not be curtailed. He effectively
distanced himself from the most orthodox forms of mercantilism, observing that a country
could not only be content with a limited wealth of gold, silver, and gems, but also have none
(Genovesi 1766, Opuscoli, Tomo IX, Ragionamenti intorno all'uso delle grandi ricchezze per
risguardo all'umana felicità, p.267).
Genovesi considered a negative balance of trade detrimental, and believed that each
country should be as little dependent on other countries as possible. He explicitly urged
countries to develop manufacturing activities using raw materials that were in abundant
supply in the region, and to sell those products when there was a shortage, or when the supply
of raw materials was insufficient to enable production. From these considerations came the
important argument underlying comparative cost theory, which was later revised by Fanno as
we will analyze below.
Genovesi views the labor force that comes from the population as the driving force of
the economy. Humans have a natural inclination to work hard and make sacrifices, which
drives him to work in order to survive. Therefore, work must first be defined in moral terms
and not in economic terms. Genovesi was very attentive to the problems that afflicted his
region on a daily basis, and was fully aware that only by elevating the status of the individual
would it be possible to face and even overcome crucial difficulties. In fact, he realized that
culture was the vital instrument with which to civilize a nation: his vision was the forerunner
of the Romagnosi approach (1832): Not only had Genovesi understood his 'three perfections'
(moral, economic, and political), culture was also an essential condition for achieving higher
levels of global economic development.
In his various writings, Genovesi underscores the role of learning, much like
before the widespread recognition of the need for a public education program in the national
21
order, the ultimate goal of which is the achievement of societal progress and happiness. The
identification of the role of culture as a driving force behind economic development was
undoubtedly significant, and all the more so given the weak interest in the theme shown by
the relevant institutions even in later times. Nevertheless, it is necessary that knowledge
(Genovesi entrusts education even to the laity), or what in modern terms we define as 'Human
Resource Training', should go hand in hand with the acquisition of sound ethical principles.
In Genovesi's vision, the civilization of society brought about improved economic
conditions, hard work being the fruit of 'civic and domestic education', contributed by
government officials and the family. Indeed, Genovesi considers that the difference between
barbarian society and civil society lies in the ignorance of barbarian society and the
knowledge of civil society. An ignorant society can only meet its own needs, whereas among
a knowledgeable society, the use of intelligence and the 'human brain' become invaluable
tools to produce higher quality and organized work.
To ensure a more reliable model, competencies should be certified by a specific
School attesting to the unique knowledge of the 'art' acquired. Here we can infer a close
relationship between vocational training and the region. Genovesi's combination of education
and vocational training shows how they complement each other: people are not only vehicles
for development, but can also be conditioned by development itself.
2.3 FANNO ANALYSIS OF POTENTIAL COMPARATIVE ADVANTAGE:
Trade, which is a central issue in development issues, has both theoretical and
practical aspects. International relations, as well as determining the flow of goods and capital,
and encouraging international investment, can also be an appropriate way to mitigate
population growth through emigration. Based on past experience, colonization is a potential
solution to increasing demographic pressures, such as observed by Genovesi, Ortes, and Verri.
After all, the economy could have traded factors of production in excess for factors of
production in short supply: but due to the inherent hardships of the time, this was not possible,
and so the exchange of goods had to take place immediately.
In fact, the function of international trade is to restore balance to the distribution of
factors of production, so that each region has a combination of factors appropriate to its stage
of development. Here, the theory of comparative cost shows its validity when the availability
of factors in different proportions in different countries is reflected in prices, and hence also in
different production costs.
Comparative costs expressed in man-days then become potential monetary costs, i.e.
22
marginal monetary costs, and, according to the theory of perfect competition, prices. No
longer constant, comparative cost becomes equivalent to the average unit price. The use of the
Ricardian principle of comparative cost to explain colonialism, an innovative approach
adopted by Fanno in 1906, can be justified given its adaptation to a dynamic interpretation of
foreign trade in general, and more specifically of trade between states and colonies, since the
movement of two classes of goods (manufactured goods against agricultural and mineral
products) can be considered as a two-good trade.
The classical model was later adopted by Fanno, but made some major changes. The
immobility of factors of production changed from absolute to relative (although their mobility
was lower than that of goods and services), so that the movement of people and capital was
often a necessary preparatory condition for trade in goods and services (Fanno 1952, p.18,
italics mine).
The gap, previously considered stable over time, becomes variable in this new version,
explaining the emphasis on potential comparative advantage, which is the dynamic element in
this approach. Given changes in factor availability, the price of traded goods also changes.
These costs, which are no longer measured in labor days, are the result of a series of
quantitative and qualitative factors that intervene in the dynamics of production. As a result,
the relative mobility of factors of production transforms potential gaps into actual gaps,
driving the process of structural transformation, which is then followed by a change in the
comparative cost differential.
The innovative aspect introduced by Fanno is dynamization, which goes beyond the
classical assumption of a stable gap over time, by examining its origins and evolutionary
potential (Manfredini Gasparetto 1987, p. 7). The dynamic version of comparative cost theory
is well suited to explain trade between different regions. Trade, which is not limited to periods
of large gaps in the Ricardian interpretation, covers every stage of international trade, both in
positive and negative qualities and quantities. This makes it possible to investigate the
interdependence between the long-term development process and the structure of trade. The
assumption of favorable gaps, which are analyzed as they emerge and develop, is associated
on the domestic side with structural motivations, and on the external side with demand. The
expansion of this approach is important: its application involves trade between developing and
developed countries. This explains the decision to expand activities related to local conditions
and resources. Here, the relative mobility of factors of production, an adaptation of Ricardian
immobility, explains the historical state of trade relations between mother countries and
colonies. Fanno (1952) based his analysis on cases where specialization and trade were
23
beneficial. After all, it is not specialization that impoverishes economically dependent regions,
but rather the insistence on production that is no longer competitive and counter to the initial
advantage. This explains the new importance of comparative cost theory, which is able to
interpret the dynamics of the main economic phenomenon, namely the unequal distribution of
resources and the resulting unequal distribution of income. Any favorable or unfavorable
position is temporary while its duration is not.
The diversity of disparities is key to understanding the stages of development of any
region or country: from primary to secondary economies and subsequent transformations. In
this operational framework, and in relation to decisions that concern the whole country, the
choice between free trade or protectionist policies depends only on the magnitude of the
differences in comparative costs, which, when they flatten out, negate the possibility of
specialization and therefore, in the field of trade, require protectionism or different protection
policies for developing industries (Manfredini Gasparetto 1987, p. 54).
The intense dynamics of change experienced by many economies25 give rise to a
series of equilibria and imbalances, which cause economic fluctuations around the upward
trend in developed countries. From Fanno's point of view, the approach based on the theory of
comparative costs and integrated into the theory of development, or even the general theory of
state economic planning becomes the theory of international trade, of which colonization is a
special case. It is true that while colonization may reflect the needs at a certain stage of
development, this is no longer the case when colonization can be replaced by free trade.
This dynamic version of the theory of comparative costs is very realistic and a guiding
principle of the development process, not only for countries wishing to enter the international
economic circuit, but also for regions wishing to become part of the domestic economy before
entering the world market, hopefully in an authoritative way. At the regional level, Fanno's
emphasis on the interdependent relationship between less developed, more underdeveloped
and more developed regions, expressed a fundamental principle: the need to strive for ever
closer and interdependent forms of cooperation. This model still has significant validity,
although its full application and implementation has been compromised by the artificial
acceleration of the development process, and by the deviant behavior of insiders (Manfredini
1972, p. 99).
Nevertheless, it captures the essential features of dynamics, which are of paramount
importance in the various stages of structural transformation affecting the country. Other
approaches that focus the analysis on only one main factor (technological gaps, economies of
scale, factors in different quantity and quality, transportation costs, etc.) are surpassed by
24
dynamic hypotheses that, by emphasizing differences in labor content, automatically explain
differences in the prices of goods. This is related to the development of the interpretation of
the contribution of human resources. But we believe that a development strategy that takes
into account regional needs, while important in the short term, will be even more important in
the long term, and become an unavoidable criterion of political strategy.
2.4 REGIONAL DISEQUILIBRIA AND THE ROLE OF THE STATE:
Private enterprise, the importance of which has been underlined by Say (1803), de
Saint-Simon (1821-1822), Marshall (1890), aims to achieve the highest possible yield from
the factors used in a rational arrangement of production. In turn, policymakers play a crucial
role in modern economies, given the importance of public services and strategies relating to
the social and economic aspects of a country, which are fundamental in generating and
maintaining national income. The state therefore discharges an important function in
production, not only as a producer of goods and services, but also in its capacity to influence
output decisions, through laws, regulations, fiscal pressure and subsidies. In this way, it can
change the behavior of private firms, even radically.
Di Nardi focuses on this relationship, and also draws on Einaudi's contribution, by
highlighting as early as 1942 and then underlining in his paper the relevance of the state as a
crucial productive input. In fact, the function of the state in the economic process is constant if
the intervention is designed to maintain social cohesion, but becomes variable if the state
intervention takes the form of support. Economic dynamics 'impose' this role on
policymakers, and policymaking should not be based on arbitrary political judgment, but
rather on the effective needs of society, one of the key issues being unemployment.
From Di Nardi's point of view (which is Keynesian in origin), it follows that
policymakers must take concrete measures to ensure full employment, which cannot be
achieved by spontaneous market forces, and cannot be sustained independently, as cyclical
fluctuations show. If the construction of public works as a means of achieving electoral
consensus is not justified, it is nevertheless a key instrument of economic stability. State
intervention should not only take the form of direct action, but should also play an integrative
role to ensure the achievement of full employment.
This explains the dual importance of state intervention: to reduce economic inequality
and to try to eliminate existing forms of inequality in the distribution of economic resources
(as in the case of the economy). The crucial objective is to limit income inequality at the level
of a nation. Public spending maneuvers are crucial to achieve these complex goals, and their
25
impact is diffused thanks to the multiplier principle. The results of state intervention should
always be evaluated based on the benefits and outcomes that can be obtained at both the local
and national levels.
When an autonomous variation of one of the components of aggregate demand
triggers, through a multiplier, an increase in output and an increase in employment, it is also
true that an increase in the level of production leads to an associated increase in investment,
which contributes to further income growth, explaining the importance of the acceleration
coefficient. The interaction between the accelerator and the multiplier will certainly increase
income significantly, but in a dualistic situation, it is important to consider whether the
increase benefits lagging regions or, on the contrary, is directed towards developed regions,
thus giving a different result than expected expectations and decisions taken.
In fact, economic development programs implemented in underdeveloped regions will
not only benefit those regions if the proposed measures are also implemented in developed
regions. Hence, there is a hidden danger that should not be underestimated. These expansive
measures may go beyond the set limits, beyond the expected scope, and spill over into other
channels. Therefore, the intervention may provide benefits to areas that, by their very nature,
do not require additional intervention, and may even give rise to a series of dysfunctions,
while the areas that were initially designated as appropriate recipients of the measures are
faced with shortcomings in terms of the benefits that were initially anticipated.
State intervention should not be implemented in situations of normal, gradual change.
The industrial world is constantly experiencing various stimuli: conversion or restructuring
phenomena caused by price dynamics, technological progress, the creation of separate goods,
the discovery and exploitation of new strategic or non-strategic sources of raw materials.
Basically, natural progress in the dynamism of modern industry does not require special
measures.
The situation will change radically if the problems become socially relevant when they
arise and result in a sharp decline in the production of market-contracted goods, and
bottlenecks in sectors where demand is increasing. The timing of adjustment is conditioned by
factor rigidities (Di Nardi 1960, p. 239), so regional differences may emerge or become more
pronounced, with adverse consequences for both production and consumption (Graziani 1969,
p. 46). As a result, certain regions or entire regions may be labeled 'depressed' or
'underdeveloped'. Different types of state intervention may be planned, and should always be
based on the principle of cost efficiency. Such measures may include concessions to reduce
the cost of investment, special credit facilities, reduction of tax burden, creation of an external
26
economy, or training and retraining of human resources.
We do not fully agree with the emphasis on the industrialization process that is
attracted Di Nardi's attention, even though it reflected a widely held vision at the time. In fact,
we believe that the original occupations of a region should be prioritized, so as not to violate
its essential socio-economic structure. So for Mezzogiorno Italia, the targeted strategy should
give priority to agricultural structures, the environment, culture and the arts, and tourism, and
should establish industrial activities that are truly coherent with these sectors. The
construction of expensive and depressing "cathedrals in the desert" or unproductive structural
equipment (certainly not in the Keynesian sense!) should be avoided.
On the other hand, Di Nardi's reasoning is entirely convincing when, thanks to the
distinction between investments with immediate or deferred returns,36 he lays the foundation
for an astute investment policy. In effect, investment with an immediate rate of return will
result in rapid growth of productive capacity, whereas investment with a deferred rate of
return, despite an increase in capital stock, will not result in an instant increase in productive
capacity. Therefore, having clearly defined the problem, the government is obliged to take the
necessary measures to remove any obstacles to potentially coordinated and harmonized
development. This is a formidable task: in addition to making reliable evaluations, it is also a
formidable task. Such interventions may not result in the desired developments, and may even
cause real imbalances. For example, the onset of inflationary dynamics38 may encourage
domestic firms to relocate in order to benefit from lower labor costs or lower costs in the true
sense. Firms may also wish to take advantage of a less volatile and less oppressive taxation
system, and avoid a series of business-hindering traps and snares.
Nevertheless, the existence of socio-economic disparities is likely to lead to
regionalism, which can take two forms: the embodiment of ideological principles, or the
expression of political realities. In the latter case, extreme territorial claims may be put
forward, often with counterproductive results. In turn, there may be specific calls for internal
protectionism, which is a decisive force in the formation of local self-government. This was
strongly criticized by Di Nardi (1967, p. 289), both as clear evidence of the failure of national
unity, and because this type of government would bring the nation back to its original state.
Today, the impact of regional autonomy is not only limited to the domestic context, but will
spread to the level of European societies, where national sovereignty as a real regulatory
mechanism is destined to play an increasingly limited role.
27
Conclusion:
The contributions of Italian scholars described here reveal a particular interest in the
investigation of real phenomena in specific historical periods, in the context of development
processes. Italian writers in the 18th century, recognizable by their genre, have sought to
study the economic conditions in their regions, in order to formulate measures that would
bring about economic improvements and stimulate economic and social reforms. There were
many pioneering theoretical contributions: the role of the division of labor in Beccaria, the
theory of the value of production goods and the gap between demographic trends and
resources in Ortes, the production of wealth in Genovesi and his striking emphasis on
individual training. Similarly Fanno, returning to the traditional framework of comparative
costs, felt the need to stick to reality. Ricardo's approach of the international trade axis as a
plausible explanation for the take-off of certain regions assumes a limited temporal
dimension, which is resolved in Fanno's version. This theory, which is dynamic due to the
variability of inequalities, explains structural transformations at each stage of development,
while respecting interdependence with development in other regions.
In the context of economic development theory, special attention was paid to
underdeveloped regions, the most striking example being the Italian Mezzogiorno. The
dualistic gap is also analyzed by Di Nardi who, although returning to Keynesian schemes,
highlights very clearly the potential for limited efficacy and waste of resources. A
fundamental theme emerges from this complex analytical framework, which links the various
contributions: the centrality of the human factor, within a distinctive regional dimension. The
role of human resources is prioritized over material resources, and the importance of forming
an ethical consciousness is crucial: this is a fundamental aspect that, by driving the system,
transcends the automatism of theoretical principles.
