5. Towards an evolutionary economic geography
In essence, evolutionary economic geography is about economic change in time and space, and it does
so from a unique perspective (summarised in table 2). Different from neoclassical and institutional
approaches, it views the behaviour of agents as conditioned, but not determined by price differentials
(neoclassical view) or institutions (institutional view). Rather, the behaviour of firms is best explained by
analysing a firm’s organisational routines, which it has acquired through its past activities. Change in
routines by innovation is primarily triggered by unsatisfactory performance, and, is fundamentally failure-
prone. Industrial dynamics thus follow from differential performance of firms caused by the heterogeneity
in their routines.
Different from neoclassical and institutional approaches, an evolutionary economic geography
analyses derives spatial dynamics at the levels of sectors, rather than the economy as a whole (neoclassical
view) or a specific geographical area (institutional view). The understanding of the spatial evolution of an
industry includes the analysis of industrial dynamics (entry and exits, product lifecycle), locational
dynamics (location of entry, spin-off, exit, and migration), and agglomeration economies (in particular,
knowledge spillovers in social networks). Such a sector analysis provides the bridge between micro and
macro in that firm behaviour is to be understood primarily within the context of its immediate competitive
environment (sector), and that macro-economic dynamics, in turn, are understood from the processes of
structural change taking place in all places at all times. Thus, taking the firms in sectors as the unit of
analysis does not imply that evolutionary theorising has no implications for the study of regions
(traditionally covered by institutional analysis) as the economy as a whole (traditionally covered by
neoclassical economics). Rather, it implies that regions and economies are to be understood from sectoral
dynamics.
Table 2: Summary of an evolutionary economic geography (EEG)
• EEG combines appreciative theorising (inductive) and formal modelling (deductive)
• EEG takes firms, and their routines, as the unit of analysis
• EEG assumes the behaviour and success of firms to be dependent primarily on the routines a firm
(or its founder) has built up in the past (path dependence)
• EEG views the traditional determinants of firm (location) behaviour being price signals
(neoclassical) and place-specific institutions as conditioning the range of possible behaviours, and
not determining observable behaviour
• EEG takes a multi-level approach allowing spatial regimes at different levels of analysis to
condition firm behaviour and performance
• EEG views institutions as primarily influencing innovation in a generic sense, and as co-evolving
with technologies over time and differently so in different regions
• EEG explains (regional) economic development from the dynamics of structural change at the
sectoral level and institutional adaptation at multiple territorial levels
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