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Evaluation of Regional Economic Policy in the New Economic Geography


  • Jan Rouwendal


  • Daniel Van Vuuren



In this paper we analyze the impact of a simple regional economic policy in the context of the core periphery model of the New Economic Geography. More specifically, we look at the welfare effects of a decrease in transport cost that is financed by a lump-sum tax on all inhabitants of the country. Our results are based on simulation. We compare the effects of traditional cost benefit analysis that measure consumerÂ’s surplus on the basis of the partial demand curve for transport with the full general equilibrium effects. Since the manufacturing sector is characterized by imperfect competition, there is potentially a substantial difference between the change in consumerÂ’s surplus and the true effects. We also consider the possibility that the investment causes a change in the long run development of the economy. In particular, we look at an investment that induces an economy that was converging to the dispersed equilibrium to move towards agglomeration. We compare the welfare effects of the redistribution of manufacturing workers and industries with those referring to a given distribution of economic activities.

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  • Jan Rouwendal & Daniel Van Vuuren, 2004. "Evaluation of Regional Economic Policy in the New Economic Geography," ERSA conference papers ersa04p119, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa04p119

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    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. Otto, Glenn & Voss, Graham M, 1994. "Public Capital and Private Sector Productivity," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 121-132, June.
    3. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Springer;Society for Computational Economics, vol. 9(2), pages 83-127, May.
    4. Naqvi, Farzana & Peter, Matthew W, 1996. "A Multiregional, Multisectoral Model of the Australian Economy with an Illustrative Application," Australian Economic Papers, Wiley Blackwell, vol. 35(66), pages 94-113, June.
    5. Matthew W. Peter & Mark Horridge & G.A.Meagher & Fazana Naqvi & B.R.Parmenter, 1996. "The Theoretical Structure of MONASH-MRF," Centre of Policy Studies/IMPACT Centre Working Papers op-85, Victoria University, Centre of Policy Studies/IMPACT Centre.
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