Roberto J. Cavazos - Metropolitan Income Growth and Convergence

Why do some cities grow and others wither? Ever since the founding of the Republic there has always been some scheme or another afoot to attract individuals and business enterprises to a particular site. Since the early colonies to the eager embellishment of late 19th century boosterism and the creation of chambers of commerce, Americans have been quite determined to ensure continued growth for their cities. The question is what determines urban growth? Much has been written on particular causes and incidents which can explain the rise of one metropolis and the fall of another. Yet, these can be so specific as to be anecdotal. Can general tendencies be observed? Can theories used to explain the phenomenon of economic growth for larger centers of economic activity such as nations or regions be employed to find those characteristics which encourage the growth of cities? Most importantly, what if anything can be done by public authorities to encourage or create those characteristics which encourage growth. Their inquiries have variously addressed both institutions and tendencies amongst the populace of a nation and the extent to which these contribute to future growth and, in turn, to the well being of the populace and stability of the state. Most recently, scholars examining the process of economic growth have introduced new bodies of theory and new research methods to help determine whether incomes converge or diverge during the process of growth.

Two main theoretical approaches now are utilized to examine income changes during the process of economic growth. Endogenous growth theory predicts that incomes will diverge. Neoclassical growth theory predicts conditional convergence. Endogenous growth theory ascribes to technological innovation the role of engine of economic growth, via the existence of a positive feedback mechanism that permits increasing returns to scale. Neoclassical growth theorists remain true to principles of microeconomic theory and grant capital accumulation the role of engine of economic growth; technological progress occurs outside the model and thus is exogenous. Both theoretical approaches have found varying levels of empirical support.

In this study growth refers to growth in real per capita income. Growth has long been a central concern for economists and other social scientists. Without much controversy one can say that poverty has been and continues to be one of the greatest sources of human misery the world over. A direct means by which to allay poverty is through economic growth. While growth may inflict costs and other challenges it nonetheless corrects a number of problems.

Early economists, most notably Adam Smith and David Ricardo, provided much of the current framework for analyzing the process and underlying determinants of economic growth. Smith looked to the division of labor and the resulting increase in productivity as an engine of growth. He also argued for reducing trade restrictions since an open economy would permit a nation to enjoy increased rates of economic growth. Ricardo devised the notion of diminishing returns. He argued that increased investment in, say, land tended to yield less than proportionate increments to output concluding that eventually growth would cease. This could only be delayed (but not avoided) through free trade (Rostow, 1990).

The first contemporarily recognizable approach to theorizing on the determinants of economic growth was undertaken by Alfred Marshall (Robbins, 1959). Marshall, unlike his major contemporaries, focused upon growth. It is likely, according to Robbins, that Marshall acquired this particular bent as he began his career translating the work of Mill and Ricardo into the mathematical propositions utilized in modern economics. In his work Marshall sets out with a number of propositions which focus on the determinants both of income growth and its distribution. His aggregate growth model is set out below: