Article

Environment and Planning C: Government

Endogenous development and Policy
2016, Vol. 34(6) 1135–1153
and institutions: Challenges ! The Author(s) 2015
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DOI: 10.1177/0263774X15624924
epc.sagepub.com
initiatives
Antonio Vázquez-Barquero
Autonomous University of Madrid, Spain

Juan C Rodrı́guez-Cohard
University of Jaen, Spain

Abstract
This paper discusses the relevance of local development policy as an instrument for regional
development. Endogenous development strives to obtain self-sustained development in urban and
rural areas and argues that institutions that facilitate the introduction of innovations leading to
diversification of productive activities and market access are key to the process. The efficiency of
local initiatives depends on the agreement between local actors on strategies and goals, as well as
local communities’ participation in the management and control of development initiatives. The
effectiveness of local initiatives confronts important challenges, such as compatibility of goals,
interaction of the forces of development, and strengthening of institutions. Therefore,
endogenous development is always a slow process that demands the evolution of institutions
and requires specific local initiatives and actions for each territory.

Keywords
Endogenous development, institutions, innovation, local initiatives

Introduction
Interest in local development has arisen, particularly since the 1990s, as a result of increasing
economic integration. Globalization of the productive and financial systems as well as of
markets for goods and services has stimulated competitiveness and brought about the
introduction of new production methods, differentiation of production, and new forms of
management. These changes encourage local communities’ participation in local
development processes with different results worldwide. Thus, the search for policies
adapted toward self-sustained development appears in cities and regions.
The purpose of this paper is to explore the main roads leading to endogenous
development policy, and it attempts to answer the following relevant questions: What

Corresponding author:
Juan C Rodrı́guez-Cohard, University of Jaen, Campus Las Lagunillas, Jaén 23071, Spain.
Email: jccohard@ujaen.es
1136 Environment and Planning C: Government and Policy 34(6)

factors make local initiatives effective for endogenous development? Is local development
policy more adapted than regional policy to the times when integration in the world
economy is increasing? What can be learned from innovative territories about rural and
urban development? Do institutions play a strategic role in economic growth and
development? How does the local actors’ participation in the design, implementation,
and control of local development policies improve results?
To answer these questions, we combine both an institutional approach and an
endogenous development interpretation in the discussion. Traditional institutional
thought (Commons, 1934; Mitchell, 1967; Veblen, 1899) considers that firms and
organizations carry out economic activities within an institutional and cultural context,
which is coevolving with society and the economy. On the other hand, the new
institutional approach (North, 1986, 1990, 2005; Williamson, 1985, 2000) holds that
there is a mutual relationship between economic growth and institutions and that this
relationship explains the slow change in territories. Building on studies by Coase (1960,
1984), they argue that connection between institutions and economic growth lies in the
reduction of transaction costs.
The endogenous development approach became prominent in early 1980s, when
economic integration opened up a scenario in which new development approaches appear.
The ideas of Schumpeter (1934, 2005) and those that contributed during the postwar years to
the creation of what Krugman (1995) called the ‘‘High Development Theory’’ (Hirschman,
1958; Lewis, 1954; Myrdal, 1957; Rosenstein-Rodan, 1943) reemerged. Among the new
interpretations was the modern growth theory (Lucas, 1988; Romer, 1986, 1990) that
considers long-run economic growth as a process determined by the internal mechanisms
of the productive system (as technological change and human capital) giving rise to
increasing returns. At the same time, an interpretation called endogenous development
(Beccatini, 1979; Fuà, 1983; Garofoli, 1992; Stöhr, 1981; Vázquez, 1987), which considers
economic growth and structural change a territorial process where institutions condition the
process of capital accumulation, is put forth.
The paper maintains that local development policies constitute a step forward with
respect to regional policies, and local initiatives strive to obtain sustainable development
in cities and regions. It argues that institutions that facilitate the introduction of innovations
leading to diversification of productive activities, firms’ competitiveness, and market access,
are strategic to the process. Hence, local actors agreeing on strategies and goals and local
communities taking part in the management and control of development initiatives are vital
for a successful implementation. However, the compatibility of goals, the development
forces dynamics, and the strengthening of institutions condition the results.
First, the paper attempts to conceptualize endogenous development. After discussing
local development policy as an instrument for self-sustained development, the article
presents some case studies in emerging and late developed economies. Next, the discussion
attempts to identify the role of institutions in endogenous development, and it points out
that institutional evolution is a leading factor in development. Finally, the article identifies
the mechanisms using innovative territories to overcome the challenges undermining
economic and social development processes. It then concludes with some final comments
on the challenges faced by local development in a global context.

Endogenous development and institutions

The endogenous development approach (Arocena, 1995; Maillat, 1995; Stöhr, 1990) is useful
for understanding the economic and productive dynamics of territories, and in helping local
Vázquez-Barquero and Rodrı́guez-Cohard 1137

actors and organizations to design and implement strategies in order to meet the challenges
of global competition.

Endogenous development, a territorial approach

The endogenous development approach considers that economic growth and structural
change is not a functional issue but a territorial phenomenon (Aydalot, 1986; Friedmann
and Weaver, 1979; Sachs, 1980). Capital accumulation is the result of the interaction of the
forces of development (diffusion of innovation and knowledge, place networks through
transportation and communications infrastructure, flexible organization of production,
evolution of institutions and social capital) within the development process (Vázquez,
2002). The combined action of all these forces multiplies the effect of each individual
factor, and this synergy conditions economic return, firms’ productivity and
competitiveness, capital accumulation, and economic and social progress.
To some extent, capital accumulation processes require the combined action of them all
(Batten, 1995; Hakansson and Johanson, 1993; Maillat, 1995; North, 1986). It is not possible
for firm networks to perform efficiently and obtain scale economies and increasing returns, if
the institutions that condition relations between firms do not encourage trust between the
actors and do not guarantee the formal agreements among firms (Vázquez, 2007). In turn,
the creation and diffusion of innovations will encounter difficulties in reducing production
costs and stimulating the presence of firms in the markets if the institutional system does not
stimulate interaction among the actors and collective learning through cooperation and
agreements between firms and organizations or if the social and institutional environment
does not facilitate the best performance in research and knowledge organizations. Finally,
hidden economies and externalities existing in cities proliferate easily when the institutional
context is flexible and adequate for the needs and demands of the economic, social, and
political actors and when institutions promote cooperation among the actors.
The endogenous development approach argues that the territory is no longer simply a
place where resources and economic activities are located. Its analysis explains how
economic viability is possible due to the generation of a surplus and how it is affected by
external economies of scale and the reduction of production and transaction costs. In this
process, the territory works as an agent for transformation because local firms and other
actors interact in order to develop the economy and society. It is in this way that endogenous
development can be understood as a process of economic growth and structural change,
which employs its local development potential to improve the population’s standard of
living.
In sum, three dimensions are identified by the endogenous development approach. One is
an economic dimension characterized by a specific production system that allows local
entrepreneurs to use the productive factors efficiently, introduce technological change and
innovation, and reach productivity levels all of which make them competitive in the national
and international markets. Next is the institutional dimension where economic and social
actors are integrated into a system of institutions that create a complex network of relations,
which incorporates social and cultural values into the development process. The third is a
political dimension, instrumented through local initiatives with multiple objectives.

The role of institutions

Development processes do not take place in a vacuum but, as Lewis (1955) and North (1990,
1994) proposed, have deep cultural and institutional roots because firms and economic and
1138 Environment and Planning C: Government and Policy 34(6)

social actors make investment and location decisions depending on the norms and rules
existing in each territory. For this reason, the ways in which local actors (including
economic and political elite) cooperate and the development of institutions condition
economic dynamics. Therefore, the contracts and mechanisms that govern agreements, the
behavior codes of the population, governance, and culture all help determine the specific
development path in each territory.
However, the dynamics of the economy and society demand institutional evolution.
The creation of new institutions and the replacement of old ones is a slow, complex
process which comes about as a result of negotiations and agreements among economic
and social actors and organizations faced with changes in the environment (Gertler,
1997). This process is endogenous to the system of relations generated as a result of a
process of cumulative causation between economic growth, the demand for institutional
change, and the actions of actors and organizations.
Economic development is conditioned by the relation existing between economic and
political institutions and their coevolution in each historical period (Caballero and Gallo,
2008). The new institutionalism approach facilitates the identification of the dynamics taking
place between political institutions associated with democracy and the economic institutions
characterizing the market economy. Nevertheless, as Acemoglu and Robinson (2012) point
out, the economic environment in which the development of places and territories takes
place is conditioned not only by the interaction between economic and political institutions
in countries but also by the dominant interests of the society.
When a society is regulated by norms and rules that place power within the reach of
citizens and emerging social and economic groups and prevent the arbitrary use of the law,
then economic institutions facilitate growth and structural change. Democratic institutions
favor the appearance of new economic and political actors who participate in the decision-
making process that affect the economy and society. This stimulates the adoption and
diffusion of innovations and, therefore, productivity and competitiveness. When political
and economic institutions create a climate of trust and confidence, firms and local actors find
a satisfactory environment in which to make investment decisions and assume the risks
needed to address challenges arising from increased competition in an increasingly
integrated world. In short, institutional evolution breeds the conditions for firms to create
value and share it with the population, local communities, and social organizations existing
in the territory.
Institutions play a crucial role in local and regional economic development, as shown by
recent literature on Economic Geography (Gertler, 2010, Rodrı́guez-Pose, 2013). The
differences between localities and regions are explained by their natural and human
resources, their entrepreneurial capacities and technological knowledge, and by their
institutions and social capital. Their economic growth and social progress depend on both
the development potential and the dynamics of the development forces. In particular, it
depends on the institutions’ evolution and change and on the interaction of local,
national, and global institutions. The quality of local institutions affects the firms’
decision-making process, the organization of production and the adoption of innovation,
and thus the regional economic development process (Rodrı́guez-Pose and Garcilazo, 2015;
Vázquez, 2002).
The importance of institutions in territorial studies was recognized by the French School
of Proximity (Kirat and Lung, 1999; Torre and Gilly, 2000) that offers a framework for
analyzing local institutional relations, in which geographical, organizational, institutional,
technological, and cognitive factors are used to explain the dynamics of territorial
development, especially from an innovation point of view. Industrial organization of
Vázquez-Barquero and Rodrı́guez-Cohard 1139

territories is explained from a competition, network, and innovation perspective, in order to

analyze the evolution of the capacity of territories and to understand the links that exist in
local and global relationships (Bouba-Olga et al., 2015).

Local development policy

When development of backward territories becomes the prime goal of regional development
policies and the reduction of regional disparities acquires a complementary nature, the door
is open for local actors and governments to take over the responsibility for the design and
implementation of territorial policy from the central administration (Polèse, 1994; Vázquez,
1993). These circumstances make it possible to address territorial development from a
bottom-up point of view, give external firms an adequate role in development processes,
and, above all, conceive and define development policy based on the interests and goals of
the local society.
Local development policies first arose at the end of the 1970s when governments in
advanced countries changed economic policy to assign a central role to macroeconomic
policies while reducing the role of industrial and regional policies and leaving the solution
to problems created by productive restructuring in the hands of local actors and
governments (Chisholm, 1990). The crisis of the 1970s due to the collapse of the fixed-
exchange rate system, higher oil prices, and increased competition in national and
international markets had deeply altered the economic environment (Judt, 2005).
Recovery was based on productive restructuring of very diverse activities (from
agriculture, textiles, and footwear, to the production of more technologically advanced
industrial goods and services) in urban and rural areas. The launching of local initiatives
in European countries stimulated the creation of both firms and jobs, which contributed to
economic recovery in all types of territories (Stöhr, 1990; Vázquez, 2002).
During the 1980s in Latin American and Asian countries, the import substitution policy
was abandoned and industrial and commercial policies lost importance as international
organizations (the World Bank, the International Monetary Fund, and the Inter-
American Development Bank) encouraged countries to embrace market-oriented
strategies to stimulate growth and structural change through proposals such as the
Washington Consensus (Rodrik, 2010; Williamson, 1990). This change in policy on the
part of central governments since the late 1980s encouraged the diffusion of local
development initiatives driven by the strengthening of democratic institutions.
The innovations in economic and social regulation led to administrative decentralization
in many countries, which made it possible for municipalities and regions to take charge
of development policies targeting the problems of their territories (Aghon et al., 2001;
Vázquez, 2010).
At present, local development is looked upon as a process with multiple objectives.
Improved efficiency would increase competitiveness of firms in localities and territories.
Reduced poverty and increased equality would improve social cohesion and well-being
(Ray, 1998, 2010; Sen, 2001), and environmental conservation would accelerate
conservation of natural resources and the historical and cultural heritage (UN, 1987;
UNDP, 2011). Achieving these goals became the challenge of public policy, which
addresses them through measures aimed at stimulating the mechanisms and forces of
development (Madoery, 2008). Public policies aspiring to improve competitiveness of
localities and regions propose actions and measures which vary according to their
location since the economic dynamic, available resources, and institutional contexts are
not uniform in all the territories (Gertler, 2010; Vázquez, 2010).
1140 Environment and Planning C: Government and Policy 34(6)

Public investment in transport infrastructure and physical capital strengthens relations

with other locations within the network of localities, thus facilitating exchange. Local
initiatives foster the expansion of local entrepreneurial capability through actions that
stimulate the creation and growth of firms and social economy (cooperatives, self-
management, and the formation of groups with common interests). Moreover, local
initiatives encourage the adoption and diffusion of innovations throughout the productive
system and increase productivity and differentiation of production. Above all, local initiatives
promote institutional change and increase local participation in the design and
implementation of projects and contribute to the creation of organizations, such as
development agencies, which helps in the management and control of initiatives and projects.
Examples of implementation policies trying to meet different objectives can be found
worldwide. In some cases, as in Los Cuchumatanes in Guatemala, it was a matter of
reducing poverty by promoting rural development through the restructuring of
agricultural and livestock activities (Cifuentes, 2000). In others, as in the Yucatan
peninsula and the Caribbean Coast of Venezuela, the goal was to preserve the
environment and cultural and historical heritage by developing tourism. Yet, others aimed
to strengthen the social economy by promoting cooperatives, as in the footwear cluster of
Marikina, the Philippines (Scott, 2005), or with the introduction of participatory budgeting
in Porto Alegre in 1989. In turn, with the objective of improving the competitiveness of
firms, the Inter-American Development Bank has financed Entrepreneurial Development
Centers in Latin America while the government of Penang, Malaysia, created the Penang
Development Center to stimulate the formation of networks of local and external firms
(Rasiah, 2007). Development Agencies, such as those sponsored jointly by the
International Labor Organization (ILO) and the United Nations Development Program
(UNDP) in Central America, the Balkans, Africa, and Asia, play a significant role in the
organization of development (Canzanelli, 2007).
Notwithstanding, local development has not been without problems, especially in the most
vulnerable territories. This is the situation of rural areas in the Latin-American tropics, where,
frequently, cases of inefficient use of natural resources and even of their destruction can be
found, as shown by the systematic deforestation of many areas of Bolivia and the Amazon
Basin (Pokorny et al., 2010). Nevertheless, there are also examples of development that prove
the capacity of local communities in promoting endogenous development. In some cases, these
experiences arise as a consequence of decentralization of public administrations; in others, the
municipalities themselves have adopted local development policies once the institutional
environment was transformed and adapted to the demands of the local actors (Palavicini,
2012). Furthermore, endogenous development processes promoted by indigenous
communities have taken place in forest areas as in the case of the ‘‘Comunidad de San Juan
Nuevo Parangaricutiro’’ in the State of Michoacán, Mexico, after the Paricutin volcano
surged in 1943 (Bray and Merino, 2004; Castro, 2012).
A pertinent question at this point is which are the decisive factors in processes of change
brought about by local development policies? Do these policies produce the same results in
all territories? Palavicini (2012) analyzes the effects of local development policies carried out
in 898 municipalities in Mexico and found that they contributed to the increased well-being
of the population between 1990 and 2005. Moreover, case studies show how the effect of the
policies on the well-being of the population increases when institutions allow citizens to
participate in the design, implementation, and control of the actions and initiatives.
Local development policy has economic and social effects that vary from one territory to
another. In Mexico, the impact was greater in municipalities in Northern states such as Baja
California and Nuevo León, but less in Southern states such as Oaxaca, Guerrero, and
Vázquez-Barquero and Rodrı́guez-Cohard 1141

Chiapas. Significant increased development took place in territories whose local initiatives
were supported by factors such as the quality of development plans, participation of the
population, skills in human resources, economic networks, and democratic functioning of
institutions. However, the effects on economic and social well-being were irrelevant when
local initiatives were politicized; there was loss of trust in the local public sector and
corruption interfered with local development policies and discouraged citizen participation
(Rodrı́guez-Pose and Palavicini, 2013).

Moving beyond geography: The institutions

All of these initiatives share the territorial logic of development. As Pyke et al. (2006) point
out, if it is assumed that development is rooted in the territory, it would seem logical to
consider that it is the result of incorporating natural resources, the local labor force,
technology, and knowledge accumulated in farms, firms, and organizations, and the
territory’s entrepreneurial resources in productive processes. Therefore, local initiatives
would have a favorable effect on social and economic welfare when the policy measures
have an impact on the forces that stimulate territorial development.
This interpretation points out the importance of geographic factors in economic
development processes. As Sachs (2001) maintains, the analysis of production dynamics in
developing regions could be based on geographical and ecological factors affecting
agriculture, health, and resources. Hence, the territory not only provides support to
productive activities but also makes available a combination of resources (human,
natural, and entrepreneurial) that define its development potential and act as a basis for
the response of local firms to the competitive challenges they face in the markets.
In an increasingly integrated world, however, it is necessary to consider that local
economies relate to the international economic system in specific ways and therefore, their
economic, political, and institutional relations affect development. Massey (1984) maintains
that territories have played different roles in the international division of labor which is why
their productive system, labor market, and social and production relations lend to each of
their unique traits that differentiate them from the others. The territories of Latin America
constitute a particularly interesting case (Acemoglu and Robinson, 2012). They are places in
which extractive institutions have generated large surpluses that were not reinvested but
rather distributed among the political and economic elites. This has had a negative effect
on the development of their productive capacity, and with respect to advanced territories,
their relative position has worsened.
Acemoglu et al. (2001) argue that in order to explain differences in the development levels
of economies, one must take into account the role of institutions in the economic and social
progress of countries and regions. Moreover, as Ostrom (2005, 2010) maintains, there are
often other forms of regulation of economic and social activities based on self-regulation
practices that enable rules to be adjusted to specific social and territorial environments.
When these forms of governance promote cooperation between firms and organizations in
the development of productive activities, they contribute to improving the population’s well-
being. Notwithstanding the latter, in regions with insufficient institutional flexibility,
informal institutions can also end up creating vicious circles of suboptimal development
trajectories through institutional lock-in (Rodrı́guez-Pose, 2013).
In sum, geographic factors and the availability of natural and human resources are
important in the economic development of territories, but institutions also have a relevant
place in the process. As a result, the quest for self-sustained growth requires institutions that
foster capital accumulation and structural change and that facilitate economic and social
1142 Environment and Planning C: Government and Policy 34(6)

mobility. To be competitive in a globalized world, it is not enough to have comparative

advantages based on the resources existing at a given time. Rather, as Porter (1990, 1998)
and Krugman (1980) point out, it is essential to generate competitive advantages by
introducing innovation and knowledge into the productive and the economic system
(Meier, 2005). Thus, development processes depend on the culture and institutions that
have built up over time, based on the geography and natural resources existing in the
territory and on the system of economic and political relations with other territories
(Sachs, 2012).
Therefore, institutions and their policy implications are considered increasingly key
factors for explaining the success or failure of endogenous development processes in a
globalized world. In this way, local development policies do not reach the desired results
when institutions do not facilitate the interaction between actors, as occurred in past decades
in the regions of Spain, when short-term political advantages were favored over long-term
economic and social results (Quesada and Rodrı́guez-Cohard, 2014). Some municipalities
and regions rather than set priorities in favor of territorial development have chosen a ‘‘catch
the subvention’’ system and offered society apparently good results, but less relevant for
development.
The same occurs with the initiatives for the stimulus of innovative clusters when local
firms and communities do not participate in its design and implementation (Ybarra and
Domenech, 2014). The initiatives gave good results when the local actors and firms play an
active role as happens with the technological centers in the Basque country, Catalonia, and
Valencia. Occasionally, even when the initiatives are conceived with the local community’s
participation, as in the case of the Sustainable Development Plans in Natural Parks of
Andalusia, the regional government when designing the actions and carrying them out
can foster sectorial over territorial measures (Alburquerque, 2009).
Thus, when the territorial development objectives are changed and the actions are focused
toward other goals, conflicts of interests between the local actors arise, which affect the
forces of development and reduce the capital accumulation process. The work of Bacarı́a
et al. (2002) on innovation support instruments in Catalonia points out that when no conflict
of interest exists, as is the case in the technological centers previously mentioned, fostering
the productive activity within the territory is possible. Yet, when disagreement between the
actors on technological parks exists, and above all, when cooperation between the research
centers of the central administration and of the autonomous communities does not exist, the
chances for local development are seriously hindered.
However, even in regions with more difficulties, it is possible to give adequate response to
the challenge of globalization. In these cases, favorable conditions were created for the
dynamics of development through instruments such as the following: the creation of
market-oriented firms in local communities, the association between firms and local
communities (such as agreements between lumber firms and forest owners to exploit forest
resources sustainably in Brazil), and the adoption of local development initiatives. Examples
can be found in all sorts of territories in Latin America and Europe (Aghon et al., 2001; Stöhr,
1990) and even in some cases of sub-Saharan Africa (Rodrı́guez-Pose and Tijmstra, 2007).
Thus, endogenous development policy became more complex (Haggard and Kaufman,
1994). On the one hand, decentralization creates a situation in which municipal decisions
must to be attuned to those of the regional and central governments; if local initiatives are to
be efficient, the coordination between the various levels of state administration is necessary.
On the other hand, relations between the local elites and actors are often difficult when
conflict of interests arise between them. In any case, cooperation between public
administrations, firms, and private organizations facilitates the local response to the
Vázquez-Barquero and Rodrı́guez-Cohard 1143

challenges of development and drives productive activity and social progress. As Bardhan
(2002) shows, the different tiers of government play different roles, but in a decentralized
policy, the State may, for instance, help to neutralize the power of local elites, provide
support to local financing and services, in order to build local capacity, act as a watchdog
for quality standards, invest in larger infrastructure, and provide coordination.
Hence, institutional change is a necessary, but not sufficient, condition for territorial
development. Local actors and organizations will lead development initiatives as long as
laws, rules, and governance allow for decentralization and the transfer of competences to
municipalities and regions. However, institutional change is a complex process that goes
beyond the reform of formal rules because the economic and political elites continue to
exert their economic and social influence when, in spite of change in formal rules, the
common law norms and customs continue to be applied. When formal rules are absent
and when rules are not enforced, this situation necessarily takes place, while the local
actors and small firms are learning to use innovations in the productive system and to
negotiate within national and international markets. All of this, however, usually leads to
conflicts between the economic and political elites and local communities that are
experiencing a process of change.

Local development initiatives: Learning from reality

Local development policy meets a relevant function in the development process when it acts
efficiently over the capital accumulation process. Yet, its results are conditioned not only by
the resources and capacities of the territory but also by the challenges that defining and
managing policies entail. In times of increasing competition within the markets, the most
dynamic territories have responded by using citizens’ capabilities, starting-up innovative
firms, and making use of new technologies. The best outcomes have been obtained as a
consequence of strengthening institutions, the interaction of development forces, and
combining different objectives.

Combining different objectives

From the endogenous development point of view, local development can be understood as a
multidimensional process that helps obtain economic progress, well-being for the
population, and environmental sustainability. Yet, these objectives can be incompatible,
given that economic development can enter into conflict with social development and
preservation of the environment.
To balance productive growth with social progress is not an easy task, but a challenge for
firms and both public and private organizations, because of the fact that compatibility of
economic efficiency and social equality is wishful thinking. As Barca (2009) maintains,
increased income and high gross domestic product is usually reached at the same time
that inequality in income distribution of the population continues to grow. In any case,
different objectives imply different measures. Whereas with improved equality, society’s
basic needs are trying to be met (which is why it is the objective of social welfare
policies), efficiency requires measures that favor self-sustained growth and structural
change in the economy.
Nevertheless, it is possible to combine different objectives that stimulate productive
development through innovation policies that better firms’ competitiveness and reduce
social inequality by improving the population’s standard of living (Goetz et al., 2011).
Ferraro (2000) states that development policy in Andalusia in the 1990s stimulated job
1144 Environment and Planning C: Government and Policy 34(6)

creation and production of goods in backward regions through aid and transfer payments.
In this way, development initiatives became yet another element of welfare policy, since they
prized the objective of social equality over economic efficiency. Combining efficiency and
equity objectives is also possible, as shown by the actions for training and education,
optimizing the skills and quality of human resources in favor of social and economic
progress.
Furthermore, there are often situations where the dynamics of the productive system
generates negative impacts on the environment. On occasion, it is a question of negative
externalities that can be corrected by internalizing these costs in the costs structure of the
firm (Alier and Jusmet, 2001). If the impacts are irreversible, however, as occurs in the
Amazon region where soybean production implies the deforestation of the territory and
the expulsion of the local communities, it is a situation in which the solution of
conflicting objectives is only possible by supporting the sustainability and long-term
development of the territory (Ros-Tonen, 2007). However, these contradictory objectives
may converge from the point of view of sustainable development when entrepreneurial
initiatives that are environment friendly are set in motion, as happens with the ecological
projects carried out in the Natural Parks of Spain (Delgadillo and Alburquerque, 2008).

The dynamics of the forces of development in action

In today’s globalized world, local development processes are achieved through the dynamics
of development forces and the productive specialization of the territories (Vázquez, 2012).
During the last 30 years, a significant territorial diversity has surfaced because of an
economic evolution, of the adoption of innovations in productive activities and of the use
of Information and Communication Technologies. In this context, local spontaneous
responses to globalization using entrepreneurial capacities are particularly relevant, such
as the cases of Zara in A Coruña (Spain) and the forest firm in the Nuevo San Juan
Parangaricutiro (NSJP) (México) but also using local development policies as in the case
of Medellin (Colombia).
A Coruña, traditionally an administrative city, became a creative city with the creation of
Zara in 1975 and the Inditex group in 1985. Its head offices and the design center of the
group as well as the logistics center were located in the metropolitan area (386,000
inhabitants); while within the city the research, education, cultural, and recreational
services were potentiated. The basis of its success story lies in the quality of its designs,
the adaptation and rapid access to the market, and the organization of its production and
distribution systems (Eriksson and Jonsson, 2011). In turn, in Medellin, with a metropolitan
area of more than three and a half million inhabitants, an innovative strategy stimulated by
the municipality is transforming the city (Aghon et al., 2001; OECD, 2015). The aim is to
turn Medellin into an innovative city through local policy actions: highlighting
infrastructure, developing industrial clusters in fashion and health services, and
implementing its own innovation policy, in which universities play a significant role.
In innovative areas, the organization of production is made more and more flexible both
due to changes in the organization of large firms as in the formation of firm networks and the
agreements among firms (Scott and Garofoli, 2007; Schmitz, 2007). Inditex is a good
example of an international value chain that allows for the adaptation of production to
the frequent changes in demand (Martı́nez Barreiro, 2008). In an undeveloped region, as in
the NSJP, the investment made since 1981, when the communal property owners created the
Vázquez-Barquero and Rodrı́guez-Cohard 1145

forest firm, transformed what was initially simply forest activity into a value chain, whose
final products are sold in national and international markets (Bray and Merino, 2004).
Product differentiation is also strengthened by the creation and evolution of clusters and
networks in traditional spaces, as occurs with the cultivation of flowers in Kenya, the
cutting of diamonds in India, and furniture production in NSJP (Castro, 2012; Porter and
Kramer, 2011). Yet, the formation of a cluster with productive chains led by innovative
firms is not always achieved, as happened in the furniture industry in Ocotlán (Jalisco)
organized around family firms in the 1980s (Mejı́a, 2014). Firm networks are weak because
relations between firms are articulated through family ties, the firms use traditional
technologies and low-skilled human resources, and they sell their products in local
markets. In addition, when ties with the main innovative firm of a network are
established, it may be that the dependant relations between firms are too strong to
allow its own local development process, as occurs with the value chains of the large
tractor firms in Spain (Ybarra and Domenech, 2014).
It is the rise in competition in the national and international markets which in fact
stimulates the firms to adopt technological innovations and use skilled human resources.
In other words, comparative advantages when faced with competitors are not enough, but
rather it is necessary to introduce innovations and technological knowledge in the products
as well as in the productive processes, better machinery and equipment goods, and improved
worker skills. In Almeria, for instance, the technological and biological improvement in
highly productive farming has provided a continuous increase in agricultural goods
adapted to the changes in market demand, transforming the comparative advantages into
competitive advantages (Galdeano-Gomez et al., 2010).
Technological change is the key in the diversification of productive activities and in the
management system in rural areas (Ros-Tonen, 2007; Schneider et al., 2000). In the wet
tropics, the adoption of technological innovation and change in attitude of the local actors
facilitate structural change, by favoring biodiversity, ecological agriculture, sustainable
exploitation of forests, furniture production, and ecotourism. In turn, specialized firms are
able to invest in capital goods and advanced technology, and also in the management of
forests and natural resources, so that their products meet the quality standards required by
the markets, as occur in NSJP (Castro, 2012).
Last of all, the organization of the territories has transformed itself as a result of the
globalization process, which helps the cities dynamics by stimulating the formation and
development of urban systems, and fostering firm competitiveness within the national and
international markets (Hall and Pain, 2006; Sassen, 2006). Madrid is a good case in point,
since it is an urban region shaped by a network of medium-sized cities, supported by a
good transportation and communications network (Vázquez et al., 2009). The change
taking place these last 20 years was conditioning its evolution from a traditional
metropolitan area to a polycentric urban network. The political, business, and leisure
activities have stayed in the central district, whereas innovative activities are located in
the technological and scientific parks, and the entrepreneurial tertiary in new commercial
infrastructures and business parks.
Likewise, Mexico DF shows how the organization and articulation of metropolitan areas
follow different patterns (Méndez and Isunza, 2014; Pérez and Hernández, 2014). Despite the
many changes taken place in the past 20 years, the effects of the restructuring of the city are
insufficient since it is a metropolitan area shaped by localities with very different dynamics
that produce imbalances in services and job creation. There are deficiencies in water and
energy supply and problems in maintaining the environment as well as the fact that informal
1146 Environment and Planning C: Government and Policy 34(6)

employment is widespread. It is an urban region not well articulated and where the
coordination of urban development actions is insufficient.

Strengthening institutions and governance

Local development is undoubtedly a complex process, since in the design of the strategy,
implementation of actions and control, a great number of actors, with different interests,
take part. Strategy and management is carried out by firms and different organizations of the
public administration, with the participation of private as well as public actors; in the
financing of the projects (infrastructures and urban development, entrepreneurial
capacities, and training of human resources, and RþD) are present different areas of the
State, nongovernmental organizations, and international organizations. Thus, the
coordination of economic, political, and social actors plays a central role in its results and
the synergy of their actions stimulates the development of the territory in which local
initiatives take place; while the lack of coordination and/or the imposition by more
powerful interest groups may stop the development process.
Therefore, the governance of development faces the challenge of needing a pertinent
institutional framework and agreement on the objectives and actions of the economic,
political, and social actors, as well as priorities. When political and social actors try to
meet objectives that do not respond to economic requirements, the governance process is
broken and development delayed, since social and political response do not answer to the
needs of the firms. Yet, when the local society reacts to the changes required by global
competition, understanding between the local actors is attained; and in order to adapt to
the market changes they rely on policy instruments. Thus, the dynamics of development
forces is sustained thanks to the agreements among all spheres involved in the governance
process. A clear example of this tacit agreement is the case of Wales facing the challenge of
resisting the current crisis; where policy makers, firms, and civil society agree in accepting a
new labor framework to retain local firms and workers that is better valued by the local
society than in other parts of the UK (Bristow and Healy, 2015).
Undoubtedly, the adaptation of objectives for each sphere of actions requires that the
actors share the analysis of the socioeconomic situation of the territory and collaborate in
order to direct the necessary institutional change. Conversely, some of the economic,
political, or social spheres may impede reaching the economic development goals and so
increase precariousness, offering populist solutions or weakening its social strength, and
leaving the territory with the only positive option: assisted development.
Furthermore, institutional strengthening becomes particularly necessary when, as
occurred in Spain since the 1990s, corruption spreads throughout all the territories
(Salinas and Salinas, 2007). Corruption has a negative effect on the quality of the
institutions and governance, weakening the processes of institutional change, which limits
territorial development, particularly in the regions and cities with lower growth rates. It
affects the objectives of development, lowering economic efficiency and increasing social
inequality and debilitates the capital accumulation process by reducing investment and the
adoption of innovations, all of which has a negative impact on the productivity of firms,
territorial competitiveness, and on income per capita.
Thus, corruption in general causes negative effects in the process of economic
development as happens in the NSJP in the second half of the last decade, but in some
cases may cause a positive reaction by the local community as in Medellin. The increasing
economic and political integration of Mexico in the international markets and increased
competition reduced the NSJP growth rate 10 years ago, and the reaction by the new
Vázquez-Barquero and Rodrı́guez-Cohard 1147

generation of the local community to this challenge was emigration; and the reason was that
the diffusion of corruption affected the institutional environment. In Medellin, however,
after decades of corruption, local entrepreneurs, foreign firms, universities, and regional
and municipal governments reoriented its development strategy; and the purpose was to
transform Medellin into an innovative city.

Final comments
The endogenous development approach considers development as a multidimensional
process. It argues that capital accumulation requires an institutional and cultural
environment that favors the use of natural resources, labor, energy, and technology, and
the interaction of development forces. Territorial development asks for institutional
evolution and the adaptation of rules and norms to the environment in which firms and
public and private organizations make investment decisions. Therefore, when institutions
facilitate the adoption of innovations that stimulate firms’ productivity and competitiveness,
they favor the achievement of the local initiatives.
Nevertheless, during the last 25 years the world has changed, becoming more integrated
and diversified, while local development appeared as a policy option for developing
territories before the globalization process started. Nowadays, economic and social
transformations have shaped a new competitive environment where regions and localities
must adapt their productive structures to technological innovations and global markets.
Thus, how can development and growth of the productive systems within the global
markets be maintained? The experience of innovative territories shows that it is important
to make the local organization of production more flexible and that networks and clusters
should be led by innovative firms in order to succeed in global markets.
Notwithstanding the latter, to face this challenge, the economic, social, and political
spheres should be involved in the development process. Some of the best political
responses given by territories recently have to do with the reinforcement of the regional
innovation systems (Cooke, 2001; Lundvall, 1992). They are at the base of growth and
structural change and are composed by a set of actors and their relations for the purpose
of firms’ adopting, diffusing, and using knowledge and technological innovation. In line with
this, the initiatives focusing on the Smart Specialization approach should be considered
(Foray et al., 2009).
Local initiatives, therefore, are useful tools for the dynamics of development forces.
However, it is a necessary condition that governance stimulates the coordination of
economic, political, and social actors through incentives related to their interests.
Decentralization and the interaction between local, regional, and central administrations
and policy measures have facilitated local responses to global challenges in emerging and
late developed countries for years (Chien, 2007; Stöhr, 1990). At present, new proposals to
improve local participation in strategic development solutions to global market changes, like
the Social Innovation (Richardson et al., 2014) and Shared-Value approaches (Porter and
Kramer, 2011), are appearing.
Above all, success lies in the strength of commitment to the projects of firms,
administrations, and public and private organizations. For this goal, local actors should
participate in the design and implementation of policies based on negotiation and specific
agreements. The policy’s success depends on an efficient public–private alliance in the
process of development. However, unfortunately, problems may appear, the most relevant
is the inefficiency of institutions (Rodrı́guez-Pose and Storper, 2006), that weakens the
process of economic development and increases the possibility of corruption within
1148 Environment and Planning C: Government and Policy 34(6)

regions and localities. As Salinas and Salinas (2007) maintain, there are no general rules for
fighting corruption because the history and culture of each territory condition the
functioning of society at a specific time. Therefore, in every case, the best thing is to
adopt measures that strengthen the formal institutions (norms and codes of the public
organizations, transparency), the functioning of the political system, and the participation
of civil society.
It is necessary here to ask how institutions should be treated and considered within local
development policy, especially during the strategic planning process (Rodrı́guez-Pose and
Garcilazo, 2015). In fact, local and regional institutions are different, therefore territories
require different policies, since a one-size-fits-all policy could lead to implement wrong
actions (Quesada and Rodrı́guez-Cohard, 2015; Rodrik, 2010). For solving this question,
the coordination of different administrations would make the combination of vertical,
horizontal, and bottom-up policies possible.
Finally, territorial development is a slow process, because local communities and public
administrations need time for sharing the development approach. Citizens need time to adopt
an active role in development processes; as well as the firms and different social and cultural
groups for the conciliation of their interests and for arriving at agreements on the rules to be
followed in the decision-making and implementation processes. Furthermore, there is an
unsolved question: How to respond to the challenge faced by local development initiatives
when the political cycle tends to be shorter than the economic one? This is not an easy task
because public interests and social values depend on local and regional institutions, and global
competition conditions firms’ economic interests. Could the local actors’ participation in the
planning, implementation, and control of local initiatives be the instrument? Just in case, the
agreements ask for a more effort and more time.

Acknowledgements
The authors would like to thank the encouraging editors’ comments, as well as to the anonymous
reviewers for their valuable recommendations.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or
publication of this article.

Funding
The author(s) received no financial support for the research, authorship, and/or publication of this
article.

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Antonio Vázquez-Barquero is Professor of Economics and Emeritus Profesor at the

Universidad Autónoma de Madrid. As a researcher his main interest is endogenous
development, spatial organization of production, economics of innovation, institutions
and local development policy. He has completed research projects and reports for
international organizations (the World Bank, UNDP, ILO, CEPAL, EU) and
municipalities and regional governments in emerging and developing countries. He has
published over 90 articles and books. He is member of the Editorial Board of several
indexed journals.

Juan C Rodrı́guez-Cohard is Associate Professor (tenured) in Economics at the University of

Jaen (Spain). He is both in charge of a research line on Territorial Economic Development in
the Doctoral Program on Social Studies and the Master in Economics and Territorial
Development. His work about Local and Regional Economic Development has been
published in national and international scientific journals. Likewise, he usually takes part
in scientific activities especially orientated to be transferred to the society (EU and Regional
and Local Governments).