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Are European regional policies delivering?

  • Philippe Martin

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 Cahiers BEI , 1999, vol. 4, pp.10-23
Handle: RePEc:spo:wpmain:info:hdl:2441/9343
Contact details of provider: Web page: http://www.sciencespo.fr/

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  1. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  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. Martin, Philippe, 1999. "Public policies, regional inequalities and growth," Journal of Public Economics, Elsevier, vol. 73(1), pages 85-105, July.
  4. repec:cor:louvrp:-1193 is not listed on IDEAS
  5. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  7. Fujita, Masahisa & Thisse, Jacques-Fran├žois, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  8. Sala-i-Martin, Xavier X., 1996. "Regional cohesion: Evidence and theories of regional growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1325-1352, June.
  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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