A Synoptic View of Regional Growth and Unemployment: I - The Neoclassical Theory

This paper is the first part of a consideration of the implications of the current controversies in macroeconomics for regional growth theory. It is concerned with the neoclassical explanation of disparities in regional growth and unemployment rates. The one-sector and two-sector neoclassical models are surveyed and it is shown how this approach explains differences in productivity growth in terms of the progressive eradication of an initial misallocation of resources (both interregionally and intraregionally). Involuntary unemployment is ascribed to the classical view that real wages are too high. The effect of the spatial diffusion of innovations on productivity growth is also examined.