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Growth Effects of Spatial Redistribution Policies

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  • Calin Arcalean
  • Gerhard Glomm
  • Ioana Cosmina Schiopu

Abstract

Regional income disparities have increased in many European countries recently, even as national and supra-national policy instruments were created to correct them. To explain these evolutions, we develop a two-region, two-sector model with migration and public investment in infrastructure and education. Accumulation and creation of new ideas and technologies as well as migration are at the core of differential regional growth. In this framework, we assess the effectiveness of structural funds, modelled on the EU policy. In a numerical example calibrated to Portugal, we find that, to diminish the initial gap in income per capita, the backward region needs to receive over 8% of its own GDP in structural funds, while the actual disbursements were around 4%. We also find that maximizing innovation in the backward region conflicts in the short run with the goal of maximizing its income per capita. Moreover, the rich region has an incentive to bias the allocation of structural funds towards human capital formation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3728.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3728

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Keywords: two-region economy; structural change; migration; regional policy; European Union;

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Cited by:
  1. Calin Arcalean & Gerhard Glomm & Ioana Schiopu & Jens Suedekum, 2007. "Public Budget Composition, Fiscal(De)Centralization, and Welfare," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2007-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Alonso-Carrera, Jaime & Freire-Serén, María Jesús & Manzano, Baltasar, 2009. "Macroeconomic effects of the regional allocation of public capital formation," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(5), pages 563-574, September.
  3. Chetan Ghate & Gerhard Glomm & Jialu Liu, 2012. "Sectoral infrastructure investment in an unbalanced growing economy: The Case of India," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers, Indian Statistical Institute, New Delhi, India 12-07, Indian Statistical Institute, New Delhi, India.
  4. Jaime Alonso-Carrera & Maria Jesus Freire-Seren & Baltasar Manzano, 2008. "Macroeconomic Effects From The Regional Allocation Of Public Capital Formation," CAMA Working Papers 2008-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Wei-Bin Zhang, 2014. "Multi-regional economic growth with public good and regional fiscal policies in a small-open economy," The Annals of Regional Science, Springer, Springer, vol. 52(2), pages 409-429, March.

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