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Endogenous Regional Policy in a Model of Agglomeration

  • Frédéric Robert-Nicoud
  • Federica Sbergami

    ()

    (IUHEI)

It is a widely observed fact that in many European countries, regions of low population density get subsidies that are not justified by their size. This paper throws some light on the effect of this phenomena on location of manufacturing activities. Considering a simple two-region economic geography model enriched to allow for endogenously determined regional policy, we find that, once the political economics of regional policy is explicitly considered, region size has an ambiguous effect in determining the equilibrium regional subsidy, while it still plays a key role in the determination of the equilibrium share of industrial activities. In particular the final allocation of firms will depend both on the relative economic strength of the two regions, as predicted by more orthodox economic geography models, and by their relative political weight.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2001.

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Length: 35
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:gii:giihei:heiwp02-2001
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