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Regional policy design: An analysis of relocation, efficiency and equity

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  • Ulltveit-Moe, Karen Helene

Abstract

Despite substantial regional expenditures at both national and community level, European regional policies do not appear to deliver. The evidence suggests that neither efficiency gains nor reduced regional inequalities are attained. If there is any positive impact at all, then it is at the most a redistributional one. If transfers are mainly redistributional in nature, would policies based on non-distortionary financing be a better route to follow? We ask what are the alternatives to a distortionary regional policy forcing the delocation of activity. Are non-distortionary policies always more efficient than distortionary alternatives? We analyse these questions employing a new economic geography model, where we also take into account the importance of knowledge spillovers for productivity, industry location and policy. It is shown that the effectiveness of different regional policy depends on (i) intra-industry knowledge spillovers, (ii) inter-industry knowledge spillovers, and (iii) trade costs. Our analysis provides insight into what may be the reason for the lack of success of EU regional initiative.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 51 (2007)
Issue (Month): 6 (August)
Pages: 1443-1467

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Handle: RePEc:eee:eecrev:v:51:y:2007:i:6:p:1443-1467

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Cited by:
  1. Becker, Johannes & Fuest, Clemens, 2010. "EU regional policy and tax competition," European Economic Review, Elsevier, vol. 54(1), pages 150-161, January.
  2. Sheard, Nicholas, 2011. "Regional Policy in a Multiregional Setting: When the Poorest are Hurt by Subsidies," Research Papers in Economics 2011:11, Stockholm University, Department of Economics.
  3. Dietmar Meyer & Jörg Lackenbauer, 2005. "EU cohesion policy and the equity-efficiency trade-off - Adding dynamics to Martin's model," ERSA conference papers ersa05p564, European Regional Science Association.
  4. Joeri Gorter & Albert Van der Horst, 2005. "New Economic Geography, Empirics, and Regional Policy," ERSA conference papers ersa05p236, European Regional Science Association.
  5. Alexiadis, Stilianos & Eleftheriou, Konstantinos, 2010. "The ‘Trade-off’ between Spatial Equity and Economic Efficiency Revisited: Evidence from the US States," MPRA Paper 24372, University Library of Munich, Germany.
  6. Gallo, Fredrik, 2006. "Resisting Economic Integration when Industry Location is Uncertain," Working Papers 2006:22, Lund University, Department of Economics.

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