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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4321.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography) R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General R50 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - General
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