The Economic Importance of Being Different: Regional Variations in Tastes, Increasing Returns, and the Dynamics of Development

Abstract

A region’s distinctive social and cultural characteristics, measured by the behaviors of its residents, represent an important source of knowledge and innovation that can drive economic development. It is well-known that many industries are localized—concentrated in specific geographic areas. Agglomeration economies, a special case of increasing returns in space, cause positive feedbacks that promote further concentration. Although often ascribed to chance, some of the events that trigger the formation of localizations appear to be related to the distinctive behaviors of a region. An examination of data on consumer behavior suggests that there are significant, nonrandom differences in behavior among regions. In the case of the Portland, Oregon, metropolitan area, many of these behavioral differences are related to concentrations of local economic activity. Local tastes and preferences may be a source of the new knowledge and innovation that spawn industry agglomerations, a connection that has important implications for development policy.

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