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Trade Effects of Regional Aid

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  • Martin, Philippe
  • Rogers, Carol Ann

Abstract

This paper examines the impact of the EC regional aid policies to finance infrastructure investment in the poorest regions where large disparities in public infrastructure (transport, telecommunications, energy and education) exist. We show that in a model in which trade is based on increasing returns, increasing returns industries tend to locate in countries with better infrastructure. By decreasing the disparities in the levels of public infrastructure, the regional aid policies lead firms to relocate from rich to poor countries. In the context of this model, the regional aid policies can be interpreted as the price paid by the richest countries for the benefits of full trade integration. In the empirical section, we find that telecommunications and education infrastructures are well correlated with industry location and per capita GDP. However, transport infrastructure, on which EC regional aid programmes concentrate, is poorly correlated with either industry location or per-capita GDP.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 910.

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Date of creation: Mar 1994
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Handle: RePEc:cpr:ceprdp:910

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Related research

Keywords: Industrial Location; Public Infrastructure; Regional Aid; Regional Integration;

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Cited by:
  1. Oyama, Daisuke, 2006. "Agglomeration under Forward-Looking Expectations: Potentials and Global Stability," MPRA Paper 15239, University Library of Munich, Germany.
  2. Andreas Haufler & Michael Pflüger, 2001. "International Commodity Taxation Under Monopolistic Competition," CESifo Working Paper Series 529, CESifo Group Munich.
  3. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  4. Christian Volpe Martincus & Iulia Traistaru, 2004. "Economic Integration And Manufacturing Concentration Patterns: Evidence From Mercosur," Royal Economic Society Annual Conference 2004 163, Royal Economic Society.
  5. Pflüger, Michael P., 2001. "A Simple, Analytically Solvable Chamberlinian Agglomeration Model," IZA Discussion Papers 359, Institute for the Study of Labor (IZA).
  6. Ostbye, Stein, 1999. "Should Norway give up regional employment subsidies?," ERSA conference papers ersa99pa322, European Regional Science Association.
  7. Pekka Mäkelä & Reino Hjerppe & Iikko Voipio, 1998. "Finland as a Member of European Union - First Experiences," Discussion Papers 180, Government Institute for Economic Research Finland (VATT).
  8. Akamatsu, Takashi & Takayama, Yuki & Ikeda, Kiyohiro, 2009. "Spatial Discounting, Fourier, and Racetrack Economy: A Recipe for the Analysis of Spatial Agglomeration Models," MPRA Paper 21738, University Library of Munich, Germany, revised 25 Dec 2009.

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