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Lecture 1: Convergence/Divergence
Date @01/09/2025
Class Theories on Innovative & Sust. Regions
Lecturer Ron Boschma
HC1-
Media TISR.pdf ppUtrechtTheoryCourseLecture1BoschmaConvergenceDivergence2025.pdf
Week 36
College
Introduction to the course
To what extend regions can adapt (react to world situations) —> Track
Innovative and sustainable regions:
Ability of regions to innovate —> otherwise regions will get stuck and lose their economic
dynamics. Italy is stuck for example
You have to be a dynamic economy —> What theories have been build to understand this
proces
How to respond to (economic) shocks? Trump tariffs
How to be socially inclusive —> inequalities are increasing, Trump favors the rich part of the
population for example —> How can regions be socially inclusive so the region can grow?
To what extend do regions have the ability to be environmentally sustainable. To leave
behind the dependence on fossil fuels.
Importance of theorizing: Theories use different concepts/explanations and methods for the
above.
Every policy has an theoretical background. Never neutral choices, but based on theories.
Three theories in economic geography: Neoclassical, evolutionary (history matters) and
institutional.
Develop an understanding on four topics in this course: Convergence/divergence,
agglomeration theory (Why do cities exist and why there?), geography of innovation (Where
do innovations take place and why there?) and regional resilience (How can regions adapt
to shocks? Who is gonna benefit and whose gonna lose?).
Theories differ a lot in how to tackle problems like climate change.
Scientific publications you have to read and the book :) The slides are also important! On the
slides are additional readings, those are useful to write the literature review.
Lecture 1: Convergence/Divergence 1
, Convergence/Divergence
Thomas Piketty (French); regional income inequality, high on the academic and political
agenda.
Silicon valley —> The global hub of tech, buttt this region has also the highest income inequality.
Because silicon valley was super successful economically it also lead to inequality.
You can look inside a region for income inequality or between regions. GDP of Netherlands,
Germany etc. is high, but their growth in GDP is standing still. The dynamics are happening in
eastern Europe. Their growing more than te rich regions in Europa, their catching up.
Convergence = decreasing income inequality between regions
Divergence = increasing income inequality between regions (the core/rich get richer)…
Lecture 1: Convergence/Divergence 2
, What do theories predict and why?
1. Neoclassical growth theory -Robert Solow 1956 (Theory before the second World War —>
didn’t even think about technology)
We are homo economicus (we can always make the right decisions, unbounded rationality
(firms, workers, etc.))
Rationality = you base your strategy to get that goal, you don’t care about the utility of
others or emotions. You do that consistently. You can have a very high risk and high reward.
But if you rather have less risk and lower reward, you have a systematic behavior to choose
this every time.
Preferences are exogenous, we assume, we state them as fact. If circumstances change
your preferences also change, but it is a given.
Complete focus on market prices
Constant returns to scale
Technology is public good (non-rival and non-excludable) —> knowledge spread seen as a
good thing so economies can grow
Income of a region depends on three factors:
Kapital (investments and net capital flows)
Labour (population growth and net migration —> they will add income to your local
economy)
Technology: not specified (exogenous) —> in rich regions they have the best technologies,
buttt that’s just a matter of time
All income will flow to the regions with the highest interest rates (at banks) by neoclassical
theory
Lecture 1: Convergence/Divergence 3
, Why convergence, neoclassical growth theory
Declining marginal productivity of capital: capital accumulation brings diminishing returns —
> there is declining output of capital, so investment in poor countries will have huge
consequences to the increasing output of capital. This is why rich regions grow less and
poor regions grow more: regional convergence
https://www.youtube.com/watch?v=ayiV7mH2_Qg
Labour will go from poor to rich regions (higher wages), labour is going from poor to rich,
but capital is going rich to poor (factories want to have low wages, so investments in poor
countries). Eventually returns on capital and labour equalizes: regional convergence.
Technology is fully available and accessible: public good —> can imitate the technologies of
rich countries. They don’t focus on why a region is more determent to create new
innovations/technology —> exogenous (The reasons are not explained, that’s called
exogenous). The reason can’t be explained in the Neoclassical model because they state
that everyone has the opportunity to acces all the information possible. So why does one
country invest more in Technology than the other? The evolutionary growth theory says that
people have restricted access to information, and this gives a reason so that is
endogenous).
Exogenous = When a variable is considered exogenous it is not being explained by the
Theory. The Neoclassical theory does not explain why some countries have better
technology than others —> because information is fully shared. Otherwise unbounded
rationality will not be true. So they have to consider Technology as a exogenous factor.
Endogenous = In evolutionary growth theory they assume bounded rationality.
Knowledge accumulates inside individuals/firms, so they have more absorptive
capacity. The evolutionary growth theory can explain why some regions perform well in
Technology.
Policy implications:
The free market will lower regional income inequality (the market will deliver in the end,
cause capital and labour will adapt).
So remove all obstacles so full mobility of capital and labour (pro-migration) can take place.
Technology is a public good: We need to secure incentives for new knowledge creation
through the patent system (through the granting of intellectual monopoly rights for some
time), or providing R&D subsides —> They knew the problem of market failure.
2. Evolutionary growth theory -Herbert Simon 1957 (Theory impact/influential ‘70/’80s)
Lecture 1: Convergence/Divergence 4
Lecture 1: Convergence/Divergence
Date @01/09/2025
Class Theories on Innovative & Sust. Regions
Lecturer Ron Boschma
HC1-
Media TISR.pdf ppUtrechtTheoryCourseLecture1BoschmaConvergenceDivergence2025.pdf
Week 36
College
Introduction to the course
To what extend regions can adapt (react to world situations) —> Track
Innovative and sustainable regions:
Ability of regions to innovate —> otherwise regions will get stuck and lose their economic
dynamics. Italy is stuck for example
You have to be a dynamic economy —> What theories have been build to understand this
proces
How to respond to (economic) shocks? Trump tariffs
How to be socially inclusive —> inequalities are increasing, Trump favors the rich part of the
population for example —> How can regions be socially inclusive so the region can grow?
To what extend do regions have the ability to be environmentally sustainable. To leave
behind the dependence on fossil fuels.
Importance of theorizing: Theories use different concepts/explanations and methods for the
above.
Every policy has an theoretical background. Never neutral choices, but based on theories.
Three theories in economic geography: Neoclassical, evolutionary (history matters) and
institutional.
Develop an understanding on four topics in this course: Convergence/divergence,
agglomeration theory (Why do cities exist and why there?), geography of innovation (Where
do innovations take place and why there?) and regional resilience (How can regions adapt
to shocks? Who is gonna benefit and whose gonna lose?).
Theories differ a lot in how to tackle problems like climate change.
Scientific publications you have to read and the book :) The slides are also important! On the
slides are additional readings, those are useful to write the literature review.
Lecture 1: Convergence/Divergence 1
, Convergence/Divergence
Thomas Piketty (French); regional income inequality, high on the academic and political
agenda.
Silicon valley —> The global hub of tech, buttt this region has also the highest income inequality.
Because silicon valley was super successful economically it also lead to inequality.
You can look inside a region for income inequality or between regions. GDP of Netherlands,
Germany etc. is high, but their growth in GDP is standing still. The dynamics are happening in
eastern Europe. Their growing more than te rich regions in Europa, their catching up.
Convergence = decreasing income inequality between regions
Divergence = increasing income inequality between regions (the core/rich get richer)…
Lecture 1: Convergence/Divergence 2
, What do theories predict and why?
1. Neoclassical growth theory -Robert Solow 1956 (Theory before the second World War —>
didn’t even think about technology)
We are homo economicus (we can always make the right decisions, unbounded rationality
(firms, workers, etc.))
Rationality = you base your strategy to get that goal, you don’t care about the utility of
others or emotions. You do that consistently. You can have a very high risk and high reward.
But if you rather have less risk and lower reward, you have a systematic behavior to choose
this every time.
Preferences are exogenous, we assume, we state them as fact. If circumstances change
your preferences also change, but it is a given.
Complete focus on market prices
Constant returns to scale
Technology is public good (non-rival and non-excludable) —> knowledge spread seen as a
good thing so economies can grow
Income of a region depends on three factors:
Kapital (investments and net capital flows)
Labour (population growth and net migration —> they will add income to your local
economy)
Technology: not specified (exogenous) —> in rich regions they have the best technologies,
buttt that’s just a matter of time
All income will flow to the regions with the highest interest rates (at banks) by neoclassical
theory
Lecture 1: Convergence/Divergence 3
, Why convergence, neoclassical growth theory
Declining marginal productivity of capital: capital accumulation brings diminishing returns —
> there is declining output of capital, so investment in poor countries will have huge
consequences to the increasing output of capital. This is why rich regions grow less and
poor regions grow more: regional convergence
https://www.youtube.com/watch?v=ayiV7mH2_Qg
Labour will go from poor to rich regions (higher wages), labour is going from poor to rich,
but capital is going rich to poor (factories want to have low wages, so investments in poor
countries). Eventually returns on capital and labour equalizes: regional convergence.
Technology is fully available and accessible: public good —> can imitate the technologies of
rich countries. They don’t focus on why a region is more determent to create new
innovations/technology —> exogenous (The reasons are not explained, that’s called
exogenous). The reason can’t be explained in the Neoclassical model because they state
that everyone has the opportunity to acces all the information possible. So why does one
country invest more in Technology than the other? The evolutionary growth theory says that
people have restricted access to information, and this gives a reason so that is
endogenous).
Exogenous = When a variable is considered exogenous it is not being explained by the
Theory. The Neoclassical theory does not explain why some countries have better
technology than others —> because information is fully shared. Otherwise unbounded
rationality will not be true. So they have to consider Technology as a exogenous factor.
Endogenous = In evolutionary growth theory they assume bounded rationality.
Knowledge accumulates inside individuals/firms, so they have more absorptive
capacity. The evolutionary growth theory can explain why some regions perform well in
Technology.
Policy implications:
The free market will lower regional income inequality (the market will deliver in the end,
cause capital and labour will adapt).
So remove all obstacles so full mobility of capital and labour (pro-migration) can take place.
Technology is a public good: We need to secure incentives for new knowledge creation
through the patent system (through the granting of intellectual monopoly rights for some
time), or providing R&D subsides —> They knew the problem of market failure.
2. Evolutionary growth theory -Herbert Simon 1957 (Theory impact/influential ‘70/’80s)
Lecture 1: Convergence/Divergence 4
