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Are European regional policies delivering?

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  • Philippe Martin

Abstract

European policy makers may have asked too much from regional policies: to decrease inequalities between regions, to increase efficiency at the national and European levels and to decrease inequalities between countries. This paper argues that these policies face a trade-off between equity and efficiency at the spatial level. If the existence of positive localised spillovers and of returns to scale explain the phenomenon of self-sustaining agglomeration, then agglomeration must have some positive efficiency effects. We also argue that because infrastructure financed by regional policies have an impact on transaction costs and therefore on the location decision of firms, the long-term effect of certain regional policies may be unexpected and unwelcome. Policies that finance infrastructure to reduce transaction costs on goods between regions lead to more agglomeration but higher growth at the national level. We show that policies that reduce agglomeration (transfers, financing of transport infrastructure inside the poor regions) may then also reduce efficiency and growth. On the contrary, a policy that reduces the cost of innovation or increases the diffusion of innovation reduces regional income inequality, agglomeration and increases growth.

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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/9343.

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Date of creation: 30 Nov 1999
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Publication status: Published in EIB Papers, 1999, vol. 4, pp.10-23
Handle: RePEc:spo:wpmain:info:hdl:2441/9343

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  1. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  2. Combes, Pierre-Philippe & Lafourcade, Miren, 2001. "Transport Cost Decline and Regional Inequalities: Evidence from France," CEPR Discussion Papers 2894, C.E.P.R. Discussion Papers.
  3. Sala-i-Martin, Xavier, 1994. "Regional Cohesion: Evidence and Theories of Regional Growth and Convergence," CEPR Discussion Papers 1075, C.E.P.R. Discussion Papers.
  4. Martin, Philippe, 1998. "Public Policies, Regional Inequalities and Growth," CEPR Discussion Papers 1841, C.E.P.R. Discussion Papers.
  5. Jayet, H. & Puig, J.-P. & Thisse, J.-F., . "Enjeux économiques de l'organisation du territoire," CORE Discussion Papers RP -1193, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc.
  7. Fujita, M. & Thisse, J.-F., . "Economics of agglomeration," CORE Discussion Papers RP -1250, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  9. Faini, Riccardo, 1983. "Cumulative processes of de-industrialisation in an open region : The case of Southern Italy, 1951-1973," Journal of Development Economics, Elsevier, vol. 12(3), pages 277-301, June.
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