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Regional redistribution and growth

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Abstract

In the last twenty years, Interregional Transfers in the form of public infrastructures have been used as an instrument to reduce regional disparities in output levels. In this paper we provide theoretical foundation on the effects of such transfers on both regional output and regional welfare disparities. We conduct our analysis in a multiregional framework considering a model with endogenous growth. Our results show that when increasing redistribution a reduction in regional output disparities might be compatible with a loss in total welfare, even in the recipient. This result is due to the fact that such transfers force a reallocation of factors of production towards those regions with lower productivities and this has a negative effect on the growth rate of the economy.

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Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 27 (2003)
Issue (Month): 2 (May)
Pages: 369-392

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Handle: RePEc:iec:inveco:v:27:y:2003:i:2:p:369-392

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Keywords: Interregional transfers; endogenous growth; public investment;

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