Introduction

Development geography and mainstream economic theory have for many years lived separate lives. Especially so since the downfall of development economics, an academic subject which has repeatedly been pronounced dead by one of today's leading US economists. The geographical dimension - the location of production in space - has completely disappeared from neo-classical economic theory. This is, in one sense, curious, because the ‘founding father’ of neo-classical economic theory - the Englishman Alfred Marshall - is still an important figure in economic geography through his industrial districts. We shall return to ‘the two Marshalls’ later in this chapter. Another vintage economist used in modern economic geography, Alfred Weber, with his Location Theory (Standorttheorie) belongs to a school of economics which virtually died out: The Historical School, of German origin.

However, economic theory is itself changing rapidly at the moment - and interestingly one of the new developments is that the ideas of the German Historical School are coming back into economic theory. In contrast to modern economic theory, in the holistic Historical School of Economics, both time (history) and place (geography) play a natural part.4 In this chapter we shall analyze the recent main trends in economic theory, and attempt to assess the implications of these changes for development geography. Especially, we shall discuss the possibilities for a process of convergence between the discipline of development geography and parts of economic theory.

In economic theory there are three main developments which we find are of potential importance to development geography: First of all, the mainstream neo-classical paradigm is being challenged from a growing school under the heading ‘Evolutionary’ or ‘Schumpeterian’ economics, with roots in the German Historical School. This group is gaining prominence within the OECD and the EU. Secondly, from inside the neo-classical school, a ‘new growth theory’ is evolving. It is not clear whether this new theory will reform the neo-classical paradigm from within, or whether it indirectly attacks the very foundations of the neo-classical system in such a way that in the long run it may bring down the whole neo-classical framework.