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Department of Economics

A Gold Rush Theory of Economic Development


I present a stylized theory of regional development in which regional ‘first nature’ characteristics do not map uniquely into regional outcomes. The ‘second nature’ force is social learning about fixed but unknown regional characteristics which can bring about self-reinforcing regional development. The key difference from other agglomeration economies is that the extent of local economic activity only influences beliefs about productivity but not actual productivity so that there are no localized external increasing returns.