Regional and local economic development from the perspective of evolutionary economic geography

Abstract

Since economic agents, as well as policymakers, are not fully informed and their decisions are embedded into a sequence of former events, the ability of learning gains significant importance in economies facing challenges of transformation. Therefore, evolutionary economic thinking is especially important in Hungary, since behavioural patterns that had evolved in the centrally planned economy might have survived the transition to a market economy. This heritage of the socialist era did not disappear suddenly, and still has an impact on regional dynamics. Industries and regions have suffered from the effect of transition after the change of the political system: the locations of heavy industry declined immediately after the collapse of the socialist block’s market, foreign-owned firms became the main engine of economic growth – but only in a limited number of regions. Failures of centralised decision-making (e.g. agrarian reforms) have affected regions in a similar way.

We believe that an evolutionary economic geography framework should be adopted in order to understand regional dynamics during the post-1989 period. Economic transformation in these models is based equally on learning and innovation as well as on local institutions and routines inherited from the past, which will all provide new insights for further research. However, major questions regarding the theory and practice also have to be discussed from the evolutionary perspective. For example, what is the logical relation between regional competitiveness and local institutions? Does competitiveness derive from institutional standards or, on the contrary, is economic success expected to change the rules?

The present paper consists of two parts. First, the main concepts of evolutionary economic geography are introduced, and the place of evolutionary thinking within economic geography is discussed. Second, we shed light on one of the basic questions of regional and local economic development from an evolutionary aspect: What is the relation between local institutions, learning, and the effects of political interventions?