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Pred's story is essentially a variant on the Big Push. Suppose that a regional economy grows to the
critical point at which it becomes profitable to replace imports of some good subject to scale economies
with local production. This import substitution will expand regional employment, drawing in workers
from other regions; and in so doing will further expand the local market. This market expansion may, in
turn, provide the market size necessary to induce a second round of import substitution, and so on a
cascade of growth reflecting the circular relationship between market size and the range of industries
that a region possesses.
The story can, of course, be elaborated. In particular, if you add forward as well as backward linkages,
the growth need not be solely due to import substitution, but may involve some export growth as well.
But surely the basic idea is very clear.
What is not clear, however, is well, you know. Pred's discussion is conspicuously silent on the question
of market structure. And as a result what he and his followers call a "model" is hardly something a
modern economist would recognize as such: it is merely a set of boxes and arrows, suggesting
relationships without being at all clear about how they work.
Local External Economies
Let me now turn to a tradition that is much closer to mainstream economics, indeed one that is
essentially a part of the mainstream if not a very major one: the analysis of local external economies.
The idea that clustering of producers in a particular location yields advantages, and that these
advantages in turn
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