Introduction

For the past two decades, scientists, policymakers, and the general public have been fascinated by the new product innovations by entrepreneurs in “Silicon Valley” (Acs, 2002). Their introduction of improvements in computers, software, semiconductors, biotechnology, and a host of other innovations have come to dominate industry after industry throughout the world. This uneven distribution of innovative activity across space has led to a host of questions about the causes and consequences of disparate economic growth (Bresnahan, Gambardella, and Saxenian, 2001).

If we are to understand why some regions grow and others stagnate, there are three fundamental questions that need to be answered (Acs and Varga, 2002). First, why and when does economic activity become concentrated in a few regions, leaving others relatively underdeveloped? Second, what role does technological change play in regional economic growth? Third, how does technological advance occur, and what are the key processes and institutions involved? In order to answer these three questions, we draw on three separate and distinct literatures that have a long and distinguished history, and all three have been recently reexamined. They are the new economic geography (Krugman, 1991a), the new growth theory (Romer, 1990), and the new entrepreneurship (Acs and Audretsch, 2003).

While each of these three literatures sheds some light on the relevant questions, none completely explains the larger questions about divergent regional growth. The new economic geography answers the question of why economic activity concentrates in certain regions but not others, but leaves out entrepreneurship and economic growth.